By Staff Reporter
ISLAMABAD: Pakistan has agreed to raise gas prices for the third time in a year and impose a hefty tax on sugar, among other measures, to meet the fiscal targets set by the International Monetary Fund (IMF), a report released by the lender said on Saturday.
The report also stated that Pakistan had pledged to implement several contingent measures in case of revenue shortfalls, including a federal excise duty of Rs5 per kilogram on sugar, which would generate an additional Rs96 billion. Other measures include raising the GST rate for textiles and leathers tier-1 from 15 percent to 18 percent to raise an additional Rs120 billion annually.
Pakistan has agreed to raise gas prices for the third time in a year and impose a hefty tax on sugar, among other measures, to meet the fiscal targets set by the International Monetary Fund (IMF), a report released by the lender said on Saturday.
The IMF said Pakistan remains committed to achieving a primary budget surplus of Rs401 billion in the current fiscal year but warned that this would require “some additional effort” in case of revenue shortfalls.
The report revealed that the caretaker government of Finance Minister Dr Shamshad Akhtar had missed the primary budget surplus target for the first quarter of the fiscal year, prompting the IMF board to grant a waiver to make Pakistan eligible for the $706 million loan tranche.
The report said Pakistan would issue a notification of the December 2023 semi-annual gas tariff adjustment determination by February 15, 2024, which would result in another increase in gas prices for consumers and businesses.
This would be the third hike in gas prices in the past year, after the caretaker government raised them by an average of 172 percent in November, according to the energy ministry. The Pakistan Bureau of Statistics reported that gas prices had surged by 1,100 percent in the same period.
The gas price increase would add to the headline inflation in the coming months, though the fund revised its inflation projections, saying consumer prices were expected to rise 24 percent on average in 2023/24, down from 25.8 percent in the previous fiscal year.
It still warned that inflationary pressures could rise in the coming months due to a recent increase in gas tariffs and higher commodity prices.
The report also stated that Pakistan had pledged to implement several contingent measures in case of revenue shortfalls, including a federal excise duty of Rs5 per kilogram on sugar, which would generate an additional Rs96 billion.
Other measures include raising the GST rate for textiles and leathers tier-1 from 15 percent to 18 percent, increasing advance income tax on the import of machinery, raw materials, and supplies, and hiking withholding tax on services and contracts. These measures are expected to raise an additional Rs120 billion annually.
The country’s gross domestic product is expected to expand 2 percent in the year ending June 2024, down from a previous projection of 2.5 percent, the IMF said.
Pakistan’s recovery from the floods that hit parts of the country in 2023 was being offset by the impact of tight fiscal and monetary policies, which are needed to rein in inflation and reduce the fiscal deficit.
“Continued external challenges and necessarily tight fiscal and monetary policy are expected to mute consumption and private investment.”
Pakistan’s current account deficit, which measures the gap between imports and exports, was expected to narrow to 1.6 percent of GDP in 2023/24, from 2.1 percent in the previous year, as imports were expected to remain subdued.
The current account deficit was expected to stabilize at around 1.5 percent of GDP over the medium term, supported by a market-determined exchange rate and efforts to rebuild foreign exchange reserves.
The IMF said Pakistan’s public debt remained high and vulnerable to shocks, despite an improvement in market sentiment since June 2023.
The public debt was expected to remain sustainable, provided that the government implemented its reform program and secured adequate financing from multilateral and bilateral partners.
However, it cautioned that any policy slippages, financing shortfalls, or adverse shocks could derail the debt sustainability path and pose challenges to the balance of payments.
The IMF also highlighted the high downside risks to Pakistan’s economic outlook, stemming from external financing constraints, higher commodity prices, tighter global financial conditions, geopolitical tensions, and political uncertainty ahead of the general elections due in 2024.
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