There has been significant progress in the Extended Fund Facility (EFF) program with the International Monetary Fund (IMF).
According to the Minister for Finance, Miftah Ismail, the IMF sent the Memorandum of Economics and Financial Policies (MEFP) for the Seventh and Eighth Reviews to Pakistan earlier today. This means that the release of the next tranche is very likely now.
He tweeted, “Early this morning, the Government of Pakistan has received an MEFP from the IMF for combined 7th and 8th reviews.”
Early this morning, the Government of Pakistan has received an MEFP from the IMF for combined 7th and 8th reviews.
— Miftah Ismail (@MiftahIsmail) June 28, 2022
Sources said that Pakistan is ready to receive the next tranche from the IMF in early July. Talks between the two sides are expected to resume on 28 June (today), and Minister Ismail and the Governor of the State Bank of Pakistan (SBP) will sign the contract with the IMF on behalf of Pakistan.
Pakistan has requested the IMF to enhance the loan program by $2 billion to $8 billion instead of $6 billion. It has also asked for a one-year extension in the program that will take it to 2024.
Pakistan has agreed to several stern conditions, including the gradual increase in petroleum levy up to Rs. 50 per liter to seal the deal. An 11 percent sales tax will also be levied on petroleum products, with effect from 1 July 2022. Last month, the government considerably increased the prices of petroleum products and completely abolished the subsidy that was being provided earlier.
The size of the budget has been enhanced from Rs. 9,500 billion to Rs. 9,900 billion, and the FBR’s annual tax target has been enhanced from Rs. 7,004 to Rs. 7,442 billion. It is noteworthy that the IMF had asked Pakistan to amend the new income tax slabs for the salaried class under budget FY23. Income Tax exemption on annual income up to Rs. 1.2 million has been withdrawn, and this exemption was announced in the new budget.
As per the conditions demanded by the lender, individuals earning an annual income of Rs. 150-300 million will pay one to four percent of the income support levy. The tax rates for the upper-income slabs will also rise considerably. Those who earn between Rs. 600,000 and Rs. 1,200,000 annually will pay a 2.5 percent income tax.
In a few remaining steps for the bailout revival, the IMF is currently pushing for an energy sector reform, the privatization of state-owned enterprises, and spending cuts.