IMF asks Pakistan to continue power tariff & gas tariff monthly & quarterly price adjustment for improving the sector’s viability

ISLAMABAD, Jan 12 (SABAH): International Monetary Fund (IMF) has asked Pakistan to continue power tariff and gas tariff monthly and quarterly price adjustment for improving the sector’s viability and protecting fiscal sustainability. The Fund has also required Pakistan to improve further the revenue collection while targeting the non-filers and bringing in to the tax net, which are untaxed or not contributing according to their potential.

IMF statement issued after the IMF Executive Board meeting, which met at Washington the other day, stated that The IMF Executive Board decision allows for an immediate disbursement of around $700 million to Pakistan.

Economic activity has stabilized in Pakistan, although the outlook remains challenging and dependent on the implementation of sound policies. Continued timely and consistent implementation of program policies remains critical, with no room for slippage. This requires strict adherence to fiscal targets while protecting social spending, a market-determined exchange rate to absorb external shocks, and further progress on structural reforms to support stronger and more inclusive growth.

IMF expects that Pakistan’s GDP growth for ongoing fiscal year 2023-24 would be around 2%.  Due to the IMF supported reforms the fiscal position strengthened in first quarter of this fiscal year, and due to such reforms primary surplus of 0.4% of GDP was recorded in this period.

The growth was also supported by the strong revenues collection, both on tax revenue, but, also non-tax revenue side as well.  IMF has admitted despite increasing the State Bank of Pakistan policy rate (Interest rate) Inflation remains elevated during July-December of this fiscal year. IMF Expects that with appropriate tight monetary policy inflation may decline to 18.5%. SBP Interest rate may decline from 22% to 18.5% by end-June 2024.

Gross Foreign Exchange reserves increased to $8.2 billion by end December 2023, up from $4.5 billion in June 2023.  Exchange rate has been broadly stable. IMF has hinted that current account deficit is expected to rise to 1.5% of GDP in FY24.

For boosting the economy, IMF has asked Pakistan that broad-based reforms require improving the fiscal framework. Pakistan should mobilizing additional revenues particularly from non-filers and under-taxed sectors. Government should improve public financial management, the step to create fiscal space for further social and development spending.

IMF authorities have admitted that Pakistani authorities took challenging steps to bring both electricity and natural gas prices closer to costs in 2023.  Pakistan should continue with regularly-scheduled adjustments and pushing cost-side power sector reforms are vital to improving the sector’s viability and protecting fiscal sustainability.