Pakistan secured an agreement with the International Monetary Fund (IMF) on the budget for the fiscal year 2022-23 on Tuesday, marking a significant step forward. Pakistan agreed to a variety of stringent requirements, including a gradual rise in petroleum charge of up to Rs. 50 per litre.
The talks moved quickly late on Tuesday at a meeting between the IMF staff team and Pakistani officials headed by Finance Minister Miftah Ismail.
“Discussions between IMF staff and authorities on measures to promote macroeconomic stability in the next year continue, and significant progress has been achieved on the FY23 budget,” Esther Perez Ruiz, the IMF’s Resident Representative in Pakistan, said in a statement.
In addition to implementing the petroleum charge, the administration has consented to a number of other foreign lender requests. The tax objective set by the Federal Board of Revenue has been increased from Rs. 7 trillion suggested in the budget.
Petroleum prices would be raised by Rs 50 to reduce subsidies, while those earning Rs 6-12 lac will pay a 2.5 percent income tax. The initial increase will be Rs 10 per litre, followed by Rs 5 per litre.
It is worth noting that the IMF has requested Pakistan to make revisions to the new income tax rates for the salaried class in the FY23 budget. Income tax exemption on yearly income up to Rs 1.2 million has been eliminated, as indicated in the 2019 budget.
Annual income of Rs 150 million to Rs 300 million would be subject to an income support charge of 1-4 percent. The tax rates for the highest income brackets will also rise dramatically. Those earning Rs 6-12 lac per year will pay 2.5 percent income tax.
The budget has been increased from Rs 9500 billion to Rs 9900 billion. The FBR’s yearly tax goal has been raised from Rs 7004 billion to Rs 7442 billion.
The IMF will now work with the central bank to finalise the objectives for net foreign assets, net domestic assets, net international reserves, and current account deficits. The finance ministry was hoping to receive the Memorandum on Economic and Financial Policies (MEFP) by Monday.
Although the broad accord falls short of a staff-level agreement, it may help to calm markets and end a four-month period of uncertainty that took a severe toll on the country’s currency, unleashing a wave of inflation and eroding market and investor confidence.
The budget size will be adjusted due to the cost of salaries and pensions, as well as the provision of roughly Rs200 billion for emergency expenditure.
The pension budget has been enhanced from Rs530 billion suggested on June 10th to Rs609 billion. The cost of administering the civilian government has been raised from Rs550 billion on June 10th to Rs600 billion.
The IMF has rejected the government’s budget plan to collect Rs200 billion in Gas Infrastructure Development Cess due to the fact that the topic is contentious and under litigation.