IMF Demands More Power Subsidy Cuts, Revision of NFC Reward, Tax Reforms

Pakistan faces stricter conditions under the recently approved International Monetary Fund (IMF) $7 billion loan program. Finance Ministry sources told ProPakistani that the IMF has urged Pakistan to cap its energy sector subsidies at no more than 1 percent of its GDP. Additionally, the government has agreed not to issue any supplementary grants during the duration of the IMF program. Sources said the lender will also directly monitor provincial expenditures to ensure compliance with agreed fiscal measures. Meanwhile, negotiations between the federal government and provinces over the National Finance Pact are still underway, and the IMF is focused on ensuring that Pakistan does not exceed its fiscal limits. To expand its tax base, Pakistan is preparing to bring the agriculture, property, and retail sectors into the tax net. As part of its broader reform efforts, the government is trying to develop a package to reduce electricity prices. This will include revising power purchase agreements in the energy sector. However, the Government of Punjab will no longer be allowed to give relief on electricity prices in the future, and no support prices for food grains will be set. The lender has also asked to revise its National Finance Commission (NFC) award formula which governs the distribution of financial resources between the federal and provincial governments. Sources added that in line with other IMF recommendations, the size of the federal government will undergo a structural reduction to cut expenses.