ISLAMABAD: The International Monetary Fund (IMF) has asked Pakistan to put limit on the circular debt and prepare Plan B in case of non-implementation on Gas Infrastructure Development Cess (GIDC) by raising gas tariff.
In order to curtail the circular debt, the government will have to either raise the power tariff or hike the subsidy amounts envisaged for the current fiscal year. On GIDC, one option is to raise the gas tariff by 23 percent for all except domestic consumers but it is going to be politically risky.
On crucial Statutory Regulatory Orders (SROs), the IMF has asked FBR to prepare an effective strategy for achieving its ambitious tax collection target of Rs2810 billion for the current fiscal year.
IMF mission’s chief Jeffry Franks in Washington D.C said: “We are closely monitoring the circular debt situation and are working with the authorities on policies to contain and eventually reduce it. There is not a formal target on circular debt at this time.”
When asked about the alternative plan in case of non-implementation of Gas Infrastructure Development Cess (GIDC) equivalent to 0.5 percent of GDP, he replied, “Yes, we have discussed alternative plan.”
To another question about concerns of the IMF related to withdrawal of SRO exemptions, Jeffry Franks said: “We are very encouraged by the first round of SRO elimination in the FY2014/15 budget, as we see it as a crucial step in creating a broader and more equitable tax base. The key now will be to ensure that the elimination yields the expected revenue gain, while preparing for a second round in the FY2015/16 budget”.
Pakistan and the IMF have already completed talks on the fourth and fifth reviews at the staff level in Dubai early this month and the Fund’s executive board is scheduled to meet in Washington DC on December 17 for approving $1.1 billion for Islamabad’s struggling economy.
Some key strategies will be discussed in the forthcoming sixth review under $6.67 billion bailout package by gauging the economic health of Pakistan for the second quarter (October-Dec) of the current fiscal year. On the issue of piling up of circular debt, the sources said that the IMF has asked the Pakistani authorities to place ceiling limit on it and in case of breaching the limit the government would have to either provide subsidy or raise power tariff in order to avoid piling up of circular debt.
“Pakistani side will have to prepare a comprehensive plan to put ceiling limit on circular debt,” said the official.The government had promulgated an ordinance to impose GIDC but the courts have granted stay orders and the litigation continues. In case of continuous non-implementation of GIDC, the government would have to prepare Plan B for raising revenues to the tune of 0.5 percent of GDP during the remaining period of the current fiscal year.
One option is to raise the gas tariff but it will be hard for the government at this juncture to give another severe shock to industry keeping in view its increasing difficulties on the political front.
Although the FBR high-ups argued that the slashing down of tax collection target could be discussed after the end of second quarter (Oct-Dec) period so efforts were under way to maximise collection in remaining months of the current fiscal year.