Pakistan must complete a series of prior actions—primarily requiring parliamentary approvals and legislation—within the next 40 days to secure a formal staff-level agreement (SLA) with the International Monetary Fund (IMF) for its upcoming bailout program. This follows a two-week dialogue between Pakistani authorities and an IMF staff mission led by Nathan Porter, covering critical sectors such as power and gas, state-owned enterprises, pensions, revenue mobilization and expansion, and monetary policy aligned with inflationary expectations.
Sources indicated that both parties reached a broad understanding on action points, timelines, and contingency plans that the government must enact through parliamentary approval of budgetary measures and related legislation in the Finance Bill 2024-25. An official stated that the IMF seeks parliamentary endorsement for the reform and policy actions due to Pakistan’s unpredictable political climate. The IMF mission will depart on Friday without announcing an SLA, following their customary goodwill receptions.
The IMF mission will review the implementation of gas and electricity tariff adjustments, the initiation of reform actions, and the approval of taxation and trade tariff-related policy measures through the Finance Bill 2024-25. If compliance is satisfactory, the SLA will be formally announced by late June or early July 2024. An official noted that online consultations might suffice for minor clarifications post-budget approval, eliminating the need for a follow-up mission.
The federal budget presentation is scheduled for June 7, considering the tight timeline due to Eidul Azha holidays. Officials mentioned that tax-related measures, such as reducing the number of slabs for salaried individuals, treating agricultural income as regular income, penalizing non-filers, and increasing transaction costs for them, will be legally incorporated into the Finance Bill through amendments to income and sales tax laws.
Additionally, the Rs60 per liter cap on petroleum development levy will be removed, and an open-ended policy will be introduced, along with clauses for a carbon tax. These taxes are intended to enhance revenue and provide leverage for price adjustments. It was agreed to increase natural gas prices for domestic, fertilizer, CNG, and cement sectors, with no changes for special commercial users like tandoors and some reductions for the power sector, as part of the new fiscal year’s gas price review.
Reforms to reduce gas sector circular debt were discussed, including progress on the weighted average cost of gas (WACOG)—a mix of local gas and imported LNG—and contingency measures for potential slippage on WACOG. The power division presented three plans to address rising capacity payments and the debt repayment timeline of CPEC-related projects, aiming to ensure full cost recovery through tariffs and stimulate demand. Agreements were reached on data and budgetary impacts for the power sector and other state-owned enterprises (SOEs).
Gas prices are expected to rise by 20-30% with the new fiscal year, depending on WACOG progress. A list of 24 SOEs, categorized as strategic, essential, or slated for privatization, was shared with the IMF. Pakistan agreed that only functions and services that the private sector cannot perform will remain government-controlled. New SOEs, including subsidiaries of Pakistan Railways and entities under Science and Technology, were also identified, with a commitment to expedite the process. However, significant progress in the privatization program is unlikely in the next fiscal year, except for a few mature transactions like Pakistan International Airlines.
Discussions on the future of state entities like Pakistan Television and Radio Pakistan will continue, focusing on their potential transfer to the private sector while ensuring compliance with corporate transparency rules.
