The International Monetary Fund (IMF) and Pakistan have stretched technical-level talks on the power sector for two more days, with the lender demanding the removal of power subsidies to the export-oriented sector as well as additional taxes.
According to a national daily, technical-level talks with the IMF continued over the weekend and will resume today on the power sector, one of the most difficult areas.
The lender evidently wants additional tax measures, such as a 1 percent increase in the standard sales tax rate, to help bridge the revenue gap. But any decision in that regard hinges on the revenue gap, which would be finalized during the policy-level discussions.
The IMF has been pushing for the withdrawal of the Rs. 100 billion power subsidy to the export-oriented sector, as well as full recovery of the Rs. 952 billion power sector gap through tariff increases. However, the government has been attempting to explain to the IMF team that settling the entire amount would be incredibly hard. When asked how much power subsidy was given to the export sector, sources said Rs. 50 billion was given.
On the fiscal front, a one-time flood levy was proposed, with an estimated revenue of Rs 180 billion. They did not rule out a significant reduction in the public sector development program (PSDP) in order to reduce the fiscal deficit. The cost of debt servicing has risen to Rs 5.2 trillion as a result of the recent devaluation, implying a fiscal deficit of more than 7%, they added.
As per schedule, the second phase of policy-level talks on the Memorandum of Economic and Financial Policies (MEFP) will last until February 9. As reported earlier, the talks are covering expenditure and revenue performance details in order to identify the policy measures — both revenue and non-revenue — that would need to be implemented over the next four months of the current fiscal year.