Pakistan govt approves new tax on electricity to meet IMF bailout conditions: Report

In a statement, the finance ministry said that the meeting approved an overarching Revised Circular Debt (power sector debt) Reduction Plan worth Rs 952 billion for the current fiscal year that would also involve an additional budget subsidy of about Rs 335 billion to meet another condition.

Team Newsable

First Published Feb 11, 2023, 2:10 PM IST | Last Updated Feb 11, 2023, 2:10 PM IST

Officials from the Pakistan government have said that its country is moving swiftly to pacify the International Monetary Fund (IMF) with the approval of a new tax on electricity users, including farmers, to raise an additional Rs 170 billion in revenue to meet the conditions of the global lender.

The IMF delegation held 10-day marathon talks with Pakistan officials to release the next tranche of USD 1.1 billion out of an already agreed loan but left on Thursday for Washington without signing a staff-level agreement.

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Finance Minister Ishaq Dar, who had led the Pakistan side in talks, told the media on Friday that prior actions were needed as the two sides would resume the talks in virtual mode from Monday.

Hours later, the minister chaired the meeting of the Economic Coordination Committee (ECC) of the cabinet which approved the imposition of a special financing surcharge of Rs 3.39 per unit in average power tariff in addition to quarterly tariff adjustments of up to Rs 3.21 per unit for one year and recovery of pending fuel cost adjustments of up to Rs 4 per unit for about three months.

The ECC also approved the discontinuation of power tariff subsidies to zero-rated industries as well as the Kissan package with effect from March 1 to fulfil other prior action conditions by the IMF.

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While approving these measures that would further burden the masses with costly electricity and other household items, the ECC approved a technical supplementary grant of Rs 450 million in favour of the Ministry of Defence, showing that the country would continue to spend on defence even when the economy was in dire straits.

Earlier, Pakistan received a jolt when the IMF team left without an agreement to finalise the 9th review of the USD 7 billion loans which was initially agreed upon in 2019 and later suspended when Pakistan failed to fulfil conditions but revived in August last year after fresh commitments.

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Meanwhile, the foreign exchange reserves have dropped below USD 3 billion, putting more pressure on the rupee and giving air to speculation of default and negatively impacting the equity market.

Internationally the Pakistani bonds due for repayment in April 2024 tumbled 4.6 cents on the dollar or roughly nine percent. Bonds with longer repayment dates fell between two and three cents. On Friday, Moody's Investors Service stated that Pakistan remains vulnerable on the external payment front.

(With inputs from PTI)

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