Pakistan raises power tariffs ahead of final talks with IMF

Special Pakistan raises power tariffs ahead of final talks with IMF
Finance Minister Asad Umar briefed the IMF officials through a video call from Islamabad about the prices of gas and electricity and the government’s efforts to limit power theft. (AFP/File)
Updated 21 December 2018

Pakistan raises power tariffs ahead of final talks with IMF

Pakistan raises power tariffs ahead of final talks with IMF
  • Will pay 3.18% interest on $3bn loan extended by Saudi Arabia, Finance Minister says
  • Further fiscal and monetary measures expected before start of bailout program, experts say

KARACHI: Prime Minister Imran Khan is working on another mini-budget, this time with an eye on increasing energy and power rates, ahead of Pakistan’s final round of negotiations with the International Monetary Fund (IMF), officials said on Thursday.
Finance Minister Asad Umar said on Wednesday that the government had assured the IMF that it will continue to reform its financial system by implementing policies across all departments.
Umar briefed the IMF officials through a video call from Islamabad about the prices of gas and electricity and the government’s efforts to limit power theft.
Earlier, while updating members of the Senate’s Standing Committee on finance and revenue about the negotiations with the IMF, Umar hinted at the possibility of introducing another mini-budget in the parliament next month reasoning that the “fiscal deficit at the current levels is not sustainable”.
He told committee members that while a proposal to increase taxes and tariffs exists, a final decision on the matter has not been taken yet.
If present, it will be the second mini-budget to be presented by the incumbent Pakistan Tehreek-e-Insaaf government after assuming office in August this year. The first was introduced in September.
The minister added that Pakistan will pay 3.18 percent interest on the $3-billion loan extended by Saudi Arabia, in addition to the $274 million worth of oil on deferred payments which the country is expected to receive from the Kingdom.
He said that Pakistan is expecting a commercial loan from China as well.
Without divulging any further details, Umar said that the mini-budget would be based on the recommendations forwarded by the Economic Advisory Council (EAC).
“Government may take measures to fix the problems which the country’s exports are facing, including tariff, duties, and rebate issues. Imports of raw materials for exportable goods may be duty free,” Dr. Abid Qaiyum Suleri, member of the EAC, told Arab News, adding that “there will be major positive change”.
“There is clarity on the policy makers’ side that Pakistan’s fundamental challenges, including tax revenue, direct taxes, public sector improvement, energy circular debt, rupee overvalue, and foreign exchange reserves must be corrected.”
“One thing may be problematic and I hope the finance ministry would be mindful. The energy prices should not be increased beyond certain level,” Dr. Suleri said, warning that “the energy inflation would be very dangerous.”
“The first mini-budget had cut development spending and increased tax rates. The second mini-budget should focus on revenue measures. The government should consider creating a digital record of all assets owned by Pakistanis and then force non-filers to become tax filers,” Dr. Mushtaq Khan, a senior economist, said.
However, some economists believe that apart from the conditions set by the IMF, the PTI government is working on its manifesto of increasing revenue collection as well.
“PTI has claimed to increase the revenue collection to Rs8 trillion in five years term...it could be a step toward that direction apart from the fund’s condition which the government is imposing,” Dr. Ayub Mehar, a Research Economist at the Asian Development Bank Institute, told Arab News.
Commenting on the government’s decision to avail the IMF program, Dr. Suleri said that “there is a state of uncertainty from the people’s perspective but from the government’s point of view, the program would impact the livelihood of people in a short span of time due to fast-paced implementation”.
Pakistan has devalued its currency six times since December 2017, even as it increased key interest rates and gas tariffs. It also increased electricity rates by an average of Rs 1.27 per unit on Wednesday as part of prior actions to avail the IMF program.
“The steps that have already been taken (rupee devalue and interest rate hike) are not the end. We expect more prior actions (on the rupee and interest rates) just before the start of the program, which is expected sometime in February 2019,” Dr. Mushtaq Khan said. 
“Going to the IMF for the first time may be the compulsion of the incumbent government but if they go again for the program it would be their incompetence,” Dr. Mehar said.
Dr. Mushtaq Khan added that the government “appeared unprepared when it took power.”
“The economic direction was announced in mid-September, when the country was already facing a foreign exchange crisis. The IMF or no-IMF comments by the Finance Minister have not been helpful,” he said.
“The fact that six months into the fiscal year (FY)19, the central bank/finance ministry has not announced a balance of payment picture for the full year is unprecedented – this does not help instill confidence in the markets. I assume that the second mini-budget will be a revival strategy for the country, but announcing it in January 2019 when the year started in July 2018, is disappointing,” he added.