IMF conditions: Govt prepares plan to reduce Pakistan’s circular debt

ISLAMABAD: The federal government has prepared a strategy to reduce circular debt of Pakistan following the conditions tabled by International Monetary Fund (IMF) to revive $7 billion Extended Fund Facility (EFF) stalled for months, ARY News reported on Wednesday, citing sources.

According to details, the Ministry of Finance prepared strategy for the repayment of country’s circular debt as the International Monetary Fund (IMF) and Pakistan would hold another round of technical talks for revival of stalled loan programme.

Sources told ARY News that Rs543 billion plan has been prepared to eliminate circular debts in the energy sector. “In this regard, the government would also provide Rs241 billion and Rs302 to Sui Southern Gas Company (SSGC) and Sui Northern Gas Pipelines Limited (SNGPL),” they claimed.

Sources further said that the amount received by the Sui Southern will clear the debt of Oil & Gas Development Company (OGDCL). Moreover, they added, the SSGC would pay Rs8 billion to private companies and Government Holdings Private Limited (GHPL).

Meanwhile, the Sui Northern Gas would pay Rs172 billion, Rs90 billion and Rs40 billion to Oil & Gas Development Company (OGDCL), Pakistan Petroleum Limited (PPL) and Government Holdings Private Limited (GHPL), respectively.

Earlier on February 2, it was reported that the International Monetary Fund (IMF) expressed concern over the circular debt in the gas sector of Pakistan.

“IMF delegation expressed reservations over the existing circular debt in the gas sector and stressed bringing immediate reforms to the energy sector,” said sources.

The Fund officials insisted Petroleum Division’s officials take action against gas theft besides taking necessary steps to stop technical losses in the sector.

Pakistan had secured a $6 billion IMF bailout in 2019, which was topped up with another $1 billion last year, but the lender then stalled disbursements in November due to Pakistan’s failure to make more progress on fiscal consolidation and economic reforms.

It is pertinent to mention here that the IMF officials have tabled tough demands before releasing $1 billion dollar tranche during the second day of talks with the Pakistani government to unlock stalled funds from a $7 billion bailout.

‘Tough conditions’

International Monetary Fund (IMF) has asked Pakistan to impose roughly Rs600-800 billion in additional taxes in the second round of talks to revive $7 billion Extended Fund Facility (EFF).

During the meeting, the Fund set tough conditions for additional measures that included imposing roughly Rs600-800 billion in additional taxes.

Sources told ARY News that Pakistan was willing to impose taxes to the tune of Rs200 billion through a ‘mini-budget’, while the Fund pressed Islamabad to foist over Rs600 billion additional taxes.

The lender also demanded the government increase tax collection to 1 percent of Gross Domestic Product (GDP). Sources claimed that the Fund demanded the government fix next fiscal year’s tax collection target at Rs8.3 billion.

Sources further claimed that the IMF also demanded to end phase-wise incentives of sales tax. It also demanded to increase sales tax on petrol from 11 percent to 17 percent, sources said, adding that Fund demanded to end Rs110 billion relief granted to textiles and other industries.

‘IMF giving tough time’

On February 3, Prime Minister Shehbaz Sharif said the International Monetary Fund (IMF) delegation was giving Pakistan “a tough time” over unlocking stalled loan programme.

The prime minister Shehbaz Sharif made these remarks while chairing an apex committee in Peshawar to mull over strategy following mosque tragedy.

“As you know, the IMF mission is in Pakistan, and that’s giving us a tough time,” he said, adding “Our economic situation is unimaginable.”

“You all know we are running short of resources,” Sharif said, adding Pakistan “at present was facing an economic crisis that’s beyond imagination.”