Progress on reform pledge emphasised to get IMF plan back on track

ISLAMABAD: The government will have to show progress in reforms in the tax system, electricity and gas prices adjustment mechanism, subsidies and structuring of public sector entities to get the International Monetary Fund (IMF) programme back on track and give confidence to the market.

In background discussions with some journalists on Friday, senior finance ministry officials agreed that while Covid-19 was a serious challenge at the same time it provided a tactical opportunity to secure as much relaxations as possible without compromising on the centrality of the commitments made under the IMF programme. The officials said the economic team had a very good relationship with the IMF.

In reply to a question, the officials said it was very important for Pakistan to remain anchored with the programme in a positive manner. “We have very good relations with IMF, which was not only forthcoming in extending a substantial Rapid Financing Instrument (RFI) (of $1.4bn) and also signalled others to support,” said one top official.

The RFI provided a comfort zone to remain afloat without second and third quarterly reviews, but wavering over decisions — power tariff for Karachi being an example — would pile up the fiscal burden and backlog in policy decisions.

Officials said the major set of measures to be pushed forward included how to improve the tax system with better clarity from all sides.

The World Bank had its own views on general sales tax. The ministry of finance was trying to put together all the stakeholders, including the World Bank and IMF, to find a clear way forward that is acceptable to all and then move forward immediately.

The second issue was how to move forward with electricity prices in an effective manner that had been held back due to Covid-19. Here too, different sides have their own views and had to be brought together to determine as to how to address circular debt and rationalise the subsidy mechanism so that subsidy reaches those for whom it is intended.

For this, a mechanism under the Benazir Income Support Programme was being studied as the beneficiaries’ monthly stipend could be topped up or paid on their behalf to the distribution companies.

Then there are some mechanical things like changes in the State Bank of Pakistan law etc which need to be addressed at the earliest.

Moreover, the National Electric Power Regulatory Authority Act has to be amended to take care of the timely quarterly price adjustments. On top of that, matters relating to oil and gas sector also need to be settled so that revenues and financial matters of oil and gas companies do not affect the entire sector.