ISLAMABAD:
Finance Minister Muhammad Aurangzeb announced that Pakistan’s negotiations with the International Monetary Fund (IMF) for a $1 billion tranche have concluded successfully. An official statement from the IMF is expected to be released on Saturday.
The announcement came during a meeting at the Prime Minister’s House, chaired by Prime Minister Shehbaz Sharif, to address concerns raised by the business community. According to government sources, PM Shehbaz inquired whether the IMF had handed over the Memorandum for Economic and Financial Policies (MEFP), which outlines the conditions for the loan tranche.
Aurangzeb confirmed that all formalities were completed and the IMF would issue its statement on Saturday. While the finance minister did not respond to requests for comment, multiple sources present at the meeting verified his remarks.
In addition to the IMF discussions, the government has decided to increase the petroleum levy by Rs10 per liter, raising it to Rs70. The additional revenue will be used to reduce electricity prices, according to sources.
The IMF talks, held from March 3 to 14, focused on the first review of Pakistan’s Extended Fund Facility (EFF) for the July-December period of the current fiscal year. The IMF also held discussions on the Climate Resilience Facility (CRF). The IMF board is expected to approve the $1 billion tranche in May, along with a new $1 billion CRF program.
The EFF tranche will be disbursed after board approval, while the CRF funds will be linked to actual spending on climate-related initiatives. A broad agreement on the MEFP was reached before the IMF delegation’s departure, with the final version expected within a month. The board is likely to review the case in early May.
**Grid Levy and Gas Prices**
During the talks, the IMF rejected Pakistan’s request to reduce the newly introduced grid levy of Rs791 per million British thermal units (mmBtu). The levy, aimed at encouraging industries to shift from gas-fired power plants to the national grid, will remain unchanged.
The government recently increased gas prices for industrial captive power plants (CPPs) by 23%, raising the total cost to Rs4,291 per mmBtu. This exceeds the price of imported LNG, a move intended to push industries toward grid electricity. However, high electricity prices, driven by inefficiencies and flawed energy policies, have discouraged this shift.
The grid levy is set to increase by 10% in July 2025, 15% in February 2026, and 20% by August 2026, potentially raising the end-price to nearly Rs6,000 per mmBtu.
Business Community Concerns
During the meeting, Lahore-based industrialists raised concerns about 600 imported goods containers stuck in Karachi. PM Shehbaz directed the Federal Board of Revenue (FBR) to clear the cargoes over the weekend and report back.
**Taxation Policies**
Discussions also covered taxation policies for the next fiscal year. Pakistan proposed applying an 18% sales tax at the import level, with deductions at subsequent retail stages, to address disparities in taxation. The FBR assured the IMF of further reforms to eliminate distortions in sales and income tax policies.
Income tax rebates currently available to certain sectors will be withdrawn in the next budget, according to sources.
Carbon Levy
An in-principle agreement was reached to introduce a carbon levy starting July 2024. The levy aims to discourage fossil fuel use and promote renewable energy. However, the government’s concerns about its impact on low-income groups and potential political repercussions were dismissed by the IMF.
The IMF plans to impose a Rs3 per liter carbon levy on petrol and diesel from July 2024, increasing it by Rs4 in fiscal year 2027. Despite government warnings about increased oil smuggling and limited progress in electric vehicle adoption, the IMF maintained its stance.
The government recently shifted from net metering to gross metering for solar power, separating the pricing of solar-generated and grid-imported electricity units. This move has raised concerns about the future of renewable energy adoption in the country.
