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With envisaging CPI-based inflation on the higher average rate of 12.7% for the next budget 2024-25, the International Monetary Fund (IMF) has asked Pakistan to share the draft of the under preparation investment policy and ensure transparency in working of the much-hyped Special Investment Facilitation Council (SIFC).
The Washington-based lender has also inquired about the tax exemptions offered by the government for the upcoming Special Economic Zones (SEZs) under the China-Pakistan Economic Corridor (CPEC).
On non-tax revenue target, the IMF wants maximisation of non-tax revenues as the proposal under consideration is to increase the Petroleum Development Levy (PDL) for increasing collection up to Rs1.08 trillion in the next fiscal year or slap Carbon levy to compensate the zero rate of GST on petroleum products.
The IMF has recommended slapping 18% GST on petrol and diesel along with PDL. Still, the government is exploring the option to impose a levy so that it should not become part of the federal divisible pool (FDP) under the NFC Award thus not going to be distributed with the provinces.
The visiting IMF team, which is a sort of an assessment mission, has not yet converted ongoing engagement into formal talks with Pakistani authorities for clinching a fresh bailout package under medium Extended Fund Facility (EFF).
Both sides possessed divergent views on the macroeconomic framework for the next fiscal budget for 2024-25. The IMF has refused to accept the macroeconomic framework of the Finance Ministry and so far pitched the macroeconomic framework for the next budget 2024-25 including real GDP growth rate at 3.5%t while the CPI based inflation was projected on higher side at 12.7%.
The Ministry of Finance has prepared a macroeconomic framework whereby the GDP growth was envisaged at 3.7 to 4% while inflation was kept on average in the range of 11 to 12%.
For the outgoing fiscal year 2023-24, the provision GDP growth figure may hover around 2 to 2.5% of GDP against the official target of 3.5%.
With finalisation of macroeconomic framework then the figures of nominal GDP would be worked out to firm up different figures including the revenues of the FBR, non-tax revenues and then expenditure side especially the largest heading of spending with debt servicing consuming the largest ticket item on expenditure head.
The IMF has projected the debt servicing of Rs9.787 trillion for the next budget for 2024-25. The Ministry of Finance has been working on the total debt servicing figures and it would depend upon the exact primary surplus being generated for the next budget for next fiscal year.
On the SIFC, Pakistani side informed the IMF assessment team that the new investment policy was under preparation which would be announced after conducting due deliberations. The IMF asks for transparency in the working of the SIFC. The IMF team inquired about the potential investment in different projects and especially asked for privatisation of PIA and other SOEs.
The IMF asks for tax exemption of upcoming four SEZs under CPEC. The Board of Investment high-ups informed the IMF team that there were over two dozen SEZs and four were being added in the list. The government is going to incentivise them with the similar tax incentives which are being offered to others. The upcoming investment policy with special focus on SEZs would be unveiled in due course of time. The IMF has sought a draft of the upcoming investment policy.
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