Latest news with #MEFP
Express Tribune
19-05-2025
- Business
- Express Tribune
'IMF conditions part of reforms'
Pakistan said on Monday that 11 new structural benchmarks by the International Monetary Fund (IMF) were not new conditions but a "continuation" and "natural next step" of the $7 billion programme to roll out the agreed reforms agenda. It said that some of these benchmarks, including a requirement to submit a plan for the smooth transition to an interest-free economy and debt servicing surcharge, had to be included due to developments that took place after the finalisation of the Memorandum for Economic and Financial Policies (MEFP) with the IMF in September last year. In a detailed statement on the rationale behind adding "new structural benchmarks" by the IMF, the Ministry of Finance said these were advancing or continuing actions under the broad policy goals set at the outset of the programme. The ministry said that actions already completed were moving to the next phase, while others were updated or reiterated to ensure that policy goals under the programme were met. On the IMF condition to publish a new Post-2027 Financial Sector Strategy, the ministry said that, "This benchmark was set in light of the 26th constitutional amendment passed in October 2024. Since the amendment took place after MEFP approval, the action could not be included in the September 2024 MEFP." It added that the action aligned the reform process with the country's constitutional priorities. In return for the Jamiat Ulema-e-Islam's support for the 26th Constitutional amendment, the government had included an article in the Constitution to abolish the interest-based economic system. The IMF staff report stated that clarity on the structure and rules of the financial system post-2027 would allow market participants to prepare and ensure financial stability during the transition. The Fund said Pakistan's strategy should clearly identify and prepare for the implications of removing 'riba' (interest) from the economy by January 2028, following the constitutional amendment. The decision would significantly impact the structure of the financial sector, stability, banking supervision, and monetary policy implementation. The global lender said that publishing this financial plan and providing guidance would help align expectations of market participants, investors, and regulators, allow time for preparation, and mitigate any cliff effect (proposed new SB, end-June 2026). The IMF report further stated that the government should develop a strategic action plan to support capital market development to address the sovereign-bank nexus, and improve access to private sector financing. In response to the IMF's concerns, the Fund included the government's position in last week's report. "We recognise that clarity on financial sector reform objectives helps build trust in institutions and policies, and thus the Ministry of Finance will lead a government effort which, in collaboration with the State Bank of Pakistan (SBP), will prepare a plan outlining the government's post-2027 financial sector strategy, outlining the institutional and regulatory environment from 2028 onwards and providing clear expectations for financial institutions (new end-June 2026 SB), with work starting by end-October 2025," reads the report. The ministry said that the structural benchmark to approve the fiscal year 2026 budget in consultation with the IMF was not a new condition. It was a continuation of ongoing fiscal consolidation targets, including the primary surplus target of 1.7% of GDP for fiscal year 2026. It added that steps related to agricultural income taxation, including legal amendments and implementation from July 1, 2025, were detailed in the September 2024 MEFP. These were not new, but scheduled follow-up actions. The ministry said the increase in Benazir Income Support Programme (BISP)transfer under the Kafalat Programme predated the current Extended Fund Facility (EFF). It was part of the 2023 programme and continued under the current programme, hence not a new conditionality. On the new IMF benchmark about Governance Diagnostic Assessment, the ministry said the commitment to publish governance reform recommendations stemmed from the September 2024 MEFP and the publication was a natural next step. The structural benchmark to adopt legislation making the captive power levy permanent operationalised an agreed reform in the September 2024 MEFP to disincentivise captive power, with the objective of phasing it out. The ministry said benchmarks about electricity tariff and gas price adjustments related to annual electricity rebasing and biannual gas tariff adjustment, which were part of the strategy to contain circular debt. These were continuous benchmarks reiterated for the next fiscal year. The ministry added that the new benchmark about the Debt Service Surcharge Cap Removal resulted from the government's plan to convert up to 80% of Central Power Purchasing Agency (CPPA) arrears into debt. As this plan was proposed after the September 2024 MEFP, the benchmark was added during the current review. On the Special Zones Incentives phase-out plan, the ministry said that eliminating incentives for Special Technology Zones (STZs) by 2035 extended earlier commitments for Special Economic Zones (SEZs) and Export Processing Zones (EPZs). It broadened the scope to all zones to ensure a level playing field for investment. It said the condition about used car import policy was part of lifting quantitative restrictions on commercial importation of used motor vehicles. Restrictions would initially be lifted for vehicles less than five years old, subject to meeting minimum environmental and safety standards. This, too, was a next step under the September 2024 MEFP. The ministry said removing trade restrictions was part of Pakistan's commitment to integrate with world trade by reducing non-tariff barriers and avoiding prolonged trade-distortive measures. "The EFF programme is designed to support gradual, medium-term reforms to achieve the government's policy goals. As each review builds upon the previous one, benchmarks reflect logical progression of existing commitments," it added.
Express Tribune
23-03-2025
- Business
- Express Tribune
IMF proposes Rs15tr tax revenue target
In the first half of FY25, the economic slowdown, exchange rate stability, lower-than-expected inflation, and sluggish LSM recovery led to a revenue loss of Rs338 billion. photo: file The International Monetary Fund (IMF) has proposed setting a tax revenue target of over Rs15 trillion in the federal budget for the upcoming fiscal year 2024-25. However, the finalization of this target will take place following detailed discussions in ongoing virtual negotiations between the government and the IMF official which are expected to conclude soon. According to sources in the Ministry of Finance, the IMF is likely to introduce new conditions in the Memorandum of Economic and Financial Policies (MEFP) as part of the staff-level agreement for the release of the next $1 billion tranche to Pakistan. However, in response to a request from the Federal Board of Revenue (FBR), the IMF has agreed in principle to grant partial relief by reducing the withholding tax rate on property purchases by 2% starting in April 2025. The withholding tax rate for property sellers, however, will remain unchanged. The sources said Pakistan and the IMF are engaged in virtual negotiations, during which further stringent conditions for the $1 billion tranche may be imposed and new financial targets may also be set for Pakistan. The government is expected to face financial structural benchmarks in the new fiscal year including new revenue collection targets to increase tax income. These targets are likely to be finalized through ongoing virtual discussions. The IMF and Pakistani officials have also discussed measures to curb tax evasion. The proposed tax revenue target for the next budget exceeds Rs15 trillion, with discussions underway to raise the tax-to-GDP ratio to 13%. The government aims to collect Rs2.745 trillion in non-tax revenue in the upcoming fiscal year. Economic growth is projected to exceed 4% in the next fiscal year, according to ministry sources. During the recent virtual meeting, the IMF agreed to lower the federal excise duty rate on property buyers, though the tax on sellers will remain unchanged. At FBR's request, the IMF has agreed to reduce the tax collection target for March 2025 by Rs60 billion. Regarding property taxation, the FBR had requested a reduction in withholding tax rates for both buyers and sellers under Sections 236C and 236K. However, the IMF has only agreed to lower the tax rate for buyers by 2% under Section 236K. Moreover, the IMF has approved the collection of Rs1.257 trillion from banks to address the issue of circular debt in the power sector.
Express Tribune
22-03-2025
- Business
- Express Tribune
IMF approves tax cut on property purchases in Pakistan
Listen to article The International Monetary Fund (IMF) has agreed in principle to a partial reduction in the withholding tax rate on property purchases, following a request from the Federal Board of Revenue (FBR). The new rate, which will be reduced by two percent, is set to come into effect in April 2025. However, the withholding tax rate imposed on property sellers will remain unchanged. According to sources, a recent virtual meeting between Pakistani officials and the IMF concluded with an agreement to lower the federal excise duty rate for property buyers. However, the tax on property sellers will still be collected at the existing rate. In addition, the IMF has also agreed to a reduction of Rs60 billion in the tax revenue target for March 2025, as requested by the FBR. The sources indicated that this development would pave the way for consensus on the Memorandum of Economic and Financial Policies (MEFP) and a staff-level agreement, which is expected to be finalized next week. Regarding the tax reduction on property transactions, FBR had previously requested the IMF to lower withholding tax rates for both buyers and sellers under Sections 236C and 236. However, the IMF has only agreed to reduce the tax rate for buyers under Section 236 by two percent. Additionally, the IMF has permitted the government to raise PKR 1,257 billion from banks to address the circular debt issue in the electricity sector.
Express Tribune
21-03-2025
- Business
- Express Tribune
FinMin Aurangzeb optimistic about IMF deal breakthrough
Listen to article Finance Minister Muhammad Aurangzeb has expressed optimism about the ongoing negotiations with the International Monetary Fund (IMF), stating that talks are in their final stages and there are no significant obstacles remaining. Speaking to the media on Friday, the minister confirmed that Pakistan is on track to meet the IMF's economic targets and reassured that the discussions will soon conclude positively. Aurangzeb emphasised Pakistan's commitment to fiscal discipline, highlighting the government's adherence to the financial framework agreed upon with the IMF. The talks are focused on securing the next tranche of funding, which is crucial for Pakistan's economic recovery. The IMF Mission Chief to Pakistan, Nathan Porter, also confirmed last week that significant progress had been made toward reaching a Staff-Level Agreement (SLA) regarding the first review of Pakistan's $7 billion loan programme. The success of these talks will pave the way for Pakistan to receive about $1 billion as part of the second instalment of the loan. Additionally, Aurangzeb addressed climate change challenges, stressing the urgent need for structured climate financing to combat environmental risks. He acknowledged the increasing threats posed by climate change, including the rapid melting of glaciers and economic disruptions caused by environmental changes, particularly in Lahore. The finance minister also highlighted international pledges for flood rehabilitation, although the country has struggled to fully utilise these resources due to implementation challenges. Earlier on Thursday, the central bank governor, Jameel Ahmad, said that there was no hurdle from the State Bank of Pakistan (SBP)'s side in reaching a staff-level agreement with the International Monetary Fund (IMF), and any outstanding issues might be related to the federal government. While talking to the media after a meeting of the Public Accounts Committee (PAC), the governor hoped that the staff-level agreement would be reached very soon with the IMF. However, he did not provide a firm date for the deal, which has been overdue since March 14. The PAC meeting also revealed that the federal government was about to give "emperor-like powers" to Federal Finance Minister Muhammad Aurangzeb to approve up to five special honoraria for employees and officers of various government departments. "There is no issue pending with us, and any outstanding issue might be on the part of the federal government," said Jameel Ahmad while responding to a question about the timing of the staff-level agreement with the IMF. The governor did not specify any particular issue but stated that finalising matters with ministries and divisions takes time. Pakistan and the IMF held talks from March 3 to 14, but both sides could not reach a staff-level agreement due to delays in finalising the Memorandum of Economic and Financial Policies (MEFP). After the mission returned to Washington, the Ministry of Finance held at least two virtual sessions with the IMF in the presence of other stakeholders. The IMF and Pakistan are in the process of finalising the MEFP in the areas of trade and taxes, along with fiscal and circular debt numbers. The federal authorities remain hopeful that the agreement will be reached soon. According to the IMF Board's schedule, the first programme review and the end-December 2024 performance and continued criteria must be completed by March 15.
Express Tribune
20-03-2025
- Business
- Express Tribune
'No hurdles in IMF agreement'
Listen to article The central bank governor, Jameel Ahmad, said on Thursday that there was no hurdle from the State Bank of Pakistan (SBP)'s side in reaching a staff-level agreement with the International Monetary Fund (IMF), and any outstanding issues might be related to the federal government. While talking to the media after a meeting of the Public Accounts Committee (PAC), the governor hoped that the staff-level agreement would be reached very soon with the IMF. However, he did not provide a firm date for the deal, which has been overdue since March 14. The PAC meeting also revealed that the federal government was about to give "emperor-like powers" to Federal Finance Minister Muhammad Aurangzeb to approve up to five special honoraria for employees and officers of various government departments. "There is no issue pending with us, and any outstanding issue might be on the part of the federal government," said Jameel Ahmad while responding to a question about the timing of the staff-level agreement with the IMF. The governor did not specify any particular issue but stated that finalising matters with ministries and divisions takes time. Pakistan and the IMF held talks from March 3 to 14, but both sides could not reach a staff-level agreement due to delays in finalising the Memorandum of Economic and Financial Policies (MEFP). After the mission returned to Washington, the Ministry of Finance held at least two virtual sessions with the IMF in the presence of other stakeholders. The IMF and Pakistan are in the process of finalising the MEFP in the areas of trade and taxes, along with fiscal and circular debt numbers. The federal authorities remain hopeful that the agreement will be reached soon. According to the IMF Board's schedule, the first programme review and the end-December 2024 performance and continued criteria must be completed by March 15. "The IMF and Pakistani authorities made significant progress toward reaching a staff-level agreement on the first review under the 37-month Extended Arrangement under the Extended Fund Facility (EFF)," said Nathan Porter, the IMF Mission Chief, after the talks last week. The smooth continuation of the programme is critical to ensuring uninterrupted rollovers of foreign debts by four bilateral creditors: Saudi Arabia, the United Arab Emirates, China, and Kuwait. The SBP governor stated that the IMF had "substantially reduced" the current account deficit projection for the current fiscal year during the recent review talks. At the time of finalising the $7 billion deal last year, the IMF had estimated the current account deficit at $3.6 billion or 0.9% of GDP for the current fiscal year. The governor neither confirmed nor denied whether the IMF has now projected the current account deficit target at around $400 million or 0.3% of GDP for this fiscal year. He said that the next fiscal year's target has not yet been finalised. During the talks, the IMF wanted to keep the current account deficit high, assuming that an increase in foreign exchange reserves would help build external sector buffers. The central bank's reserves remained flat at $11.1 billion by the end of last week, barely enough to finance a little over two months of imports. When asked, the governor said that the IMF is also revising inflation and economic growth projections. He noted that the central bank expects economic growth to remain around 3% during the current fiscal year. He highlighted the significant growth in foreign remittances and expressed hope that they would remain above $36 billion this fiscal year. PAC proceedings Headed by PTI's Junaid Akbar, the PAC discussed audit objections related to the finance ministry and expressed dissatisfaction over the nation's financial management. PAC members repeatedly pointed out poor budgeting and weak fiscal discipline by the Ministry of Finance during the fiscal year 2022-23. On an audit objection regarding the payment of Rs241 million in honoraria to finance ministry employees without any policy, Finance Secretary Imdadullah Bosal disclosed that a new honoraria policy would soon be approved by the federal cabinet. However, the policy's framework indicated that discretionary powers over honoraria distribution would continue. Bosal said that the Economic Coordination Committee (ECC) of the Cabinet had approved the honoraria policy in June 2022, but the federal cabinet had not yet granted approval. According to the proposed policy, the federal secretary can award one month's salary as a bonus to all employees and an additional salary to 25% of the total employees. Two special honoraria can also be granted. However, Bosal stated that the ECC chairman, who is also the finance minister, would have the authority to grant up to five months' salaries as "special honoraria." Committee members criticised these discretionary rewards, comparing them to the lavish gifts given by Mughal emperors. They argued that such powers should not be included in the policy. Bosal noted that 60 departments receive budgeted honoraria, not just the finance ministry.
