$1 billion IMF tranche talks conclude 'successfully'

Finance Minister Muhammad Aurangzeb has said that talks between Pakistan and the International Monetary Fund for over $1 billion tranche remained successful and a formal communiqué by the Fund will be released today (Saturday). The finance minister made the statement during a meeting at the Prime Minister's House, which Shehbaz Sharif chaired to hear out the business community's grievances, according to the government sources. Shehbaz Sharif inquired from his finance minister whether the IMF handed over the Memorandum for Economic and Financial Policies (MEFP) to Pakistan – the set of policy documents that define the conditions for the loan tranche. Everything is in order and the IMF would release the statement on Saturday, Aurangzeb is said to have told the Prime Minister in the presence of the business community on Friday. Aurangzeb did not respond to a request for comment whether he made these remarks in the meeting. However, the multiple sources present in the meeting confirmed it to The Express Tribune. It has also been decided to increase petroleum levy to Rs70 per liter - Rs10 higher than existing rates - and use the funds to reduce power prices, said the sources. The levy will be increased to absorb price reduction, they added. Pakistan and the IMF talks were held from March 3 to 14 for the first review of the Extended Fund Facility (EFF) for the July-December period of the current fiscal year. Before the EFF Mission, the IMF also held meetings for the Climate Resilience Facility (CRF). It is expected that the IMF board would consider Pakistan's request for the completion of the first review worth over $1 billion in May. It will also approve the new CRF programme worth over $1 billion in the first week of May, said the Finance Ministry sources. The EFF tranche will be released in May after the board approval but the disbursements under the estimated $1 billion climate facility will be linked with the actual spending on the climate related initiatives. The finance ministry sources said that before the departure of the IMF, a broad agreement on the MEFP had been reached and the final version will be ready within one month. After that the case will be circulated for the approval of the board, which is expected to take it up in early May. Grid Levy On the last day of talks, the IMF held a concluding meeting with the finance minister and the Finance Secretary. Sectoral meetings were also held on Pakistan's request to reduce the amount of new Rs791 per million British thermal unit (mmBtu) grid levy by about Rs250 to Rs300. Both sides also gave final touches to the amendments in the Pakistan Sovereign Wealth Fund Act to bring it in line with the IMF's prescription. The sources said that the Petroleum Division took up the issue of the recently introduced levy with the IMF and requested it to lower the rates by linking it with average electricity price instead of peak hour rates. The sources said that the IMF did not accept the government's request and said that the higher rates were necessary to compel the industries to shift on the electricity grid by abandoning gas-fired in-house power generation plants. The government last week notified a 23% increase in gas prices for the industrial captive power plants (CPPs) by imposing Rs791 per mmBtu levy. After the imposition of the new levy, total gas prices for the captive power plants have increased to Rs4,291 per mmBtu as the government had also increased gas rates for the said category by Rs500 a few months ago. The gas prices are now even higher than the imported LNG prices –a policy that is aimed at forcing the industries to shift to the national grid. However, people are reluctant to buy the grid electricity due to exorbitant prices, which are the results of the passing on of the sector's inefficiency to the consumers and wrong energy policies. The government will increase the grid levy by 10% in July 2025, followed by 15%in February 2026 and another 20% by August 2026, taking the end-price close to Rs6,000 to make gas supply punitive for the industry to shift to the national power grid. During the meeting with the business community, the Lahore-based industrialists complained about 600 imported goods containers, which were stuck up in Karachi. The PM instructed the FBR to clear these cargoes at the weekend and report back. New taxation policies The sources said that the discussions were also held in the taxation policies for the next fiscal year. Pakistan asked the IMF that in order to end disparity in taxation policies, 18% sales tax should apply at the import level, with deductions enforced at subsequent retail stages. The imported goods are already taxed at 18% except a few goods, which create distortions and encourage use of imported raw materials over locally available goods. The FBR assured the IMF that it would further eliminate sales tax and income tax distortions to end the culture of rent seeking, said the sources. Also, income tax rebates currently available to a few sectors will be withdrawn in the next budget, said the sources. Carbon Levy The sources said that in-principle understanding has also been reached to slap the carbon levy with effect from July. The tax is meant to discourage the use of fossil fuels and promote renewable technologies. Ironically, the government virtually scrapped the net metering solar panel policy and introduced the gross-metering concept by separating the price of solar generated units and the imported units from the national grid. The IMF wants to impose Rs3 per liter carbon levy on petrol and diesel from July this year, which will be increased by another Rs4 in the fiscal year 2027. The IMF did not accept Pakistan's view that the carbon levy will impact the poor and lower middle class and may also carry political implications. The government was also of the view that the fuel demand was inelastic and the levy cannot reduce it but the IMF did not agree. The Fund also disregarded the government's claim that levy will increase smuggling of low cost oil and it cannot expedite shifting towards electric vehicles.

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