ISLAMABAD: The government had pledged to the International Monetary Fund (IMF) to increase petroleum levy on petrol by Rs10 per litre effective 1 September, but raised it by Rs17.50. It also pledged to increase it by Rs5 per litre on diesel and decreased it by 2.5 per litre.
The pledges were made in the Letter of Intent (LoI) submitted by the government to the IMF. The Fund was informed that the government met all the four prior actions for the seventh/eighth review including increase in the petroleum development levy (PDL), required for the seventh and eighth reviews under the Extended Fund Facility (EFF) programme.
These include: (i) parliament approved the fiscal year 2023 budget, including a personal income tax (PIT) reform in line with IMF staff agreement to meet program targets on June 29, 2022 and the Ministry of Finance published a Statement of Contingent Liabilities with all guarantees expected to be issued during fiscal year 2023;(ii) Provincial budgets - signature by the federal and provincial governments of Memoranda of Understanding (MoUs) on provincial fiscal targets consistent with the fiscal year 2023 budget; (iii) Reversal of the February relief package and (iv) Catch-up in power tariffs.
The government notified on July 5, 2022, the full subsidy reform mark up (Rs0.20 per kWh) to take effect from July 5, 2022; and on July 25, 2022, a three-stage increase related to the combined fiscal year 2022-23 annual rebasing (AR), with the first stage (PRs 3.50/kWh) to take effect on July 25, 2022, the second stage (PRs 3.50/kWh) on August 1, 2022 and third stage on October 1, 2022 (PRs 0.91/kWh).
The Fund was further informed that the government met six of the eight quantitative performance criteria (QPCs). These include: the (1) ceiling on net domestic assets (NDA) of the SBP, (2) ceiling on the SBP’s stock of net foreign currency swaps/forward position, (3) ceiling on net government budgetary borrowing from the SBP, (4) ceiling on the amount of government guarantees, and (5–6) continuous PCs on both zero new flow of SBP credit to the government and zero external public payment arrears.
The government missed the two QPCs on the: (1) floor on net international reserves (NIR) as reserves were lost in a difficult external environment; and (2) ceiling on the primary budget deficit due to the costly relief package introduced by the previous government (most notably fuel and electricity subsidies as well as fuel taxation) and spending pressures (mainly from the energy sector which were not sufficiently budgeted for). These two QPCs were already missed by end-March 2022 for the same reasons.
The government missed three continuous performance criteria (PCs): (1) non-intensification of exchange restrictions and the non-modification of multiple currency practices (MCP) as set of items were extended subject to cash margin requirement on April 7, 2022; (2) non imposition of import restrictions for balance of payment purposes as an import ban on luxury and nonessential items on May 19, 2022 was proposed; and (3) non-imposition of exchange restrictions as a requirement for prior approval of initiating payments for imports of certain goods on May 20, 2022 was imposed.
The government met two of the six indicative targets (ITs) including (1) the floor on the net tax revenue collection; and (2) the floor on the gross issuance of longer-term debt instruments.
The government missed four ITs:(1) floor on targeted cash transfers spending (BISP) mainly because of a slower-than-envisaged enrollment into the unconditional cash transfer (UCT) programme Kafaalat and an earlier-than-programmed phasing-out of the emergency cash transfer programme on account of an improved Covid-19 trajectory; (2) floor on health and education spending due to less expenditure on both COVID-19 vaccine procurement in fiscal year 2022 Q3 and education due to the implementation of COVID restrictions; (3) ceiling on the net accumulation of tax refund arrears due to administrative delays; and (4) ceiling on power sector payment arrears mainly due to delayed tariff adjustments and higher-than expected generation and financial costs.
Copyright Business Recorder, 2022
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