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Express Tribune
5 days ago
- Business
- Express Tribune
Govt plans tax to counter India's water threat
Pakistan has sought the International Monetary Fund's (IMF) permission to impose a special 1% tax on every taxable product produced in the country, except electrical energy and medicines, to fund two mega water storage dams as a solution to deal with Indian water aggression. The decision to impose a new cess has been taken after majority of the provincial governments showed reluctance to finance the early completion of the Diamer-Bhasha Dam and the Mohmand Dam, according to the sources in the Ministry of Water Resource and the Ministry of Finance. However, the government was also meeting opposition from the IMF, which has urged the federal government to try to find a space within the approved Rs1 trillion federal Public Sector Development programme, the sources revealed. The Diamer-Bhasha Dam worth Rs480 billion and Mohmand Dam – originally estimated to cost Rs310 billion – had been approved in 2018 but still a minimum Rs540 billion was needed for their completion. India has threatened to cut water supplies after it held the Indus Waters Treaty (IWT) in abeyance in violation of the treaty provisions and in the breach of the international law. Islamabad has plainly told India that any such act would be considered as an act of war. The sources said that as an alternate strategy, Pakistan has decided to fast track the construction of the two dams. However, due to its political priorities and pressing demands by the coalition partners, the government has reduced the water sector development budget by 28% to Rs133 billion for the next fiscal year. Now it wants to offset this by introducing a new tax. The sources said that the government has decided to levy a 1% cess on the gross value of all local taxable supplies to raise the additional funds, subject to the approval by the IMF and by parliament. They said that all the goods produced in Pakistan and subjected to tax are proposed to be charged at a new cess rate of 1%. The goods that are currently exempted from the sales tax under the Sixth Schedule, or are charged at a zero rate under the Fifth Schedule of the sales tax law would be immune to the cess. Likewise, the electrical energy goods and pharmaceutical goods are proposed to be exempted from the new cess. Cess is different from a normal tax and it can only be levied for a specific purpose, like the Gas Infrastructure Development Cess (GIDC) that had been imposed to fund Iran-Pakistan Gas Pipeline. Effectively, every good produced in Pakistan and consumed by all households would be subject to 1% new special tax, said the sources. The Ministry of Finance spokesman Qumar Abbasi and the Secretary Water Resources Ministry Syed Ali Murtaza did not respond to the request for comments. They have been asked to confirm the development and also the IMF's position. A senior Finance Ministry official said that the proposal was under consideration but the discussions with the IMF were still going on. He said that the cess would not be imposed through the Finance Act 2025, and instead a new separate bill will be introduced in parliament, subject to the IMF clearance. In the case of GIDC, the Supreme Court has decided that the cess can only be levied for a specific purpose and it requires separate legislation. This binds the government's hands from introducing the cess through the Finance Act, which is currently under discussion in parliament. The GIDC case is also an example of how the government is indifferent. The textile and fertiliser companies have not yet deposited over Rs400 billion in the kitty despite collecting those from the consumers. The finance and petroleum ministries are not able to make an effective strategy. One of the options is that instead of levy a new 1% cess, the government should amend the GIDC law and divert the already collected money towards building dams. On the intervention of the Petroleum Minister Ali Pervaiz, the government has again constituted a committee under the chairmanship of Finance Minister Muhammad Aurangzeb to recover the GIDC. But this committee too is moving at a snail's pace. The sources said that the IMF's view was that the government should fund the dam projects from the PSDP instead of imposing more burden on the people. However, the Ministry of Water Resources has informed the government that it would take 15 years to complete the Mohmand Dam and over 20 years to finish work on the Diamer-Bhasha Dam at the current pace of the budget allocations. The PSDP is already overstretched and there is no space to fund these projects beyond the allocations made in the new budget, said Ahsan Iqbal, the federal minister for Planning and Development. He said that out of the Rs1 trillion allocations, effectively, Rs640 billion was available for funding the PSDP. Iqbal said that the remaining Rs360 billion had been allocated for spending on N-25 Karachi-Quetta road, provincial schemes and special areas' allocations. The sources said that after the National Economic Council (NEC) meeting earlier this month, Prime Minister Shehbaz Sharif had also chaired a special meeting with the provinces to convince them to fund these two dams to deal with Indian aggression. In a follow-up meeting with Deputy Prime Minister Ishaq Dar, the provinces except Khyber-Pakhtunkhwa showed reluctance to fund federal projects, said the sources. The cost of the Diamer-Bhasha Dam had been estimated at Rs480 billion seven years ago and it still needs Rs365 billion more to complete the work against a price that is likely to increase further. For the next fiscal year, only Rs25 billion has been allocated for project, which is even less than this fiscal year. Likewise, the Mohmand Dam was approved at a cost of Rs310 billion seven years ago and it still requires a minimum of Rs173 billion more at the old price. Only Rs35.7 billion has been allocated in the new fiscal year. Earlier this week, Ahsan Iqbal said that the government has advanced the completion of both the projects by two years and these dams will be completed by 2030. He said that on completion, Pakistan will have 7 million acre feet of additional water storage capacity. Pakistan's two reservoirs Tarbela and Mangla dams are facing storage related issues due to sedimentation and other technical issues. The Sindh government has given a deficit budget for the next fiscal year and also showed zero-balance for the outgoing fiscal year. This has surprised many, as the provincial government had a cash surplus of Rs395 billion till March this year, according to the Ministry of Finance's fiscal operations summary. For the next fiscal year, Sindh has shown a Rs38.5 billion deficit budget, which defeats the IMF's core objective of getting Rs1.4 trillion cash surpluses from all the four provinces.
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Business Standard
14-05-2025
- Business
- Business Standard
IMF disburses $1.023 bn tranche to Pak; to hold discussions about budget
The International Monetary Fund has disbursed a second tranche of $1.023 billion under the Extended Fund Facility programme for Pakistan, the central bank said on Wednesday. The disbursement of the second tranche comes on a day when the International Monetary Fund (IMF) is holding virtual discussions on Pakistan's upcoming budget as the visit of its mission to Islamabad was delayed due to security concerns in the region. The federal government is planning to unveil the budget for fiscal 2025-26 on June 2. The IMF talks will continue until May 16. The Central bank said the second tranche amount would be reflected in its foreign exchange reserves for the week ending May 16. The amount was approved last week by the IMF board under the ongoing Extended Fund Facility (EFF) and allowed an additional arrangement for the $1.4 billion Resilience and Sustainability Facility (RSF). The decision to release the funds came after the IMF expressed satisfaction on the first review of Pakistan's economic reform programme supported by the EFF Arrangement, the bank said. The IMF noted that Pakistan's policy efforts under the EFF had already delivered significant progress in stabilising the economy and rebuilding confidence, amidst a challenging global environment. Fiscal performance has been strong, with a primary surplus of two per cent of gross domestic product achieved in the first half of FY25, keeping Pakistan on track to meet the end-FY25 target of 2.1 per cent of GDP. Pakistan's gross reserves stood at $10.3 billion at end-April, up from $9.4 billion in August 2024, and are projected to reach $13.9 billion by end-June 2025 and continue to be rebuilt over the medium term, it was pointed out. Meanwhile, the IMF talks that started virtually Wednesday will continue until May 16. The global lender has appointed a new mission chief to Pakistan and the mission is now expected to travel to Islamabad over the weekend, subject to the security situation, government sources told The Express Tribune on Tuesday. The IMF mission delayed its scheduled arrival here on Tuesday due to uncertainty caused by the India-Pakistan conflict that had affected air travel across the region. Virtual discussions are expected to be held from today. For the second and final leg of the talks, the IMF team is expected to arrive in Islamabad on Saturday and stay until May 23, the source said. The IMF's Resident Representative to Pakistan Mahir Binici did not respond to a request for comment on the change in the travel plan. Finance Ministry spokesperson Qumar Abbasi also did not respond to questions on the change in the travel plans. Meanwhile, the IMF appointed Iva Petrova, a Bulgarian origin staff member, as new Mission Chief to Pakistan. She would join the discussions along with the outgoing Mission Chief Nathan Porter who served in the position for an extended term. Binici also did not comment on whether both outgoing and new mission chiefs would join both rounds of talks. Petrova, who holds a PhD degree in economics from the Michigan State University, has been serving as the IMF Mission Chief to Armenia. Previously, she had served with the missions to Israel, Iceland and Latvia. In Pakistan, the fiscal policy is expected to remain tight in the next fiscal year too. The IMF has asked Pakistan to make a budget on the assumption of having 1.6 per cent of the GDP primary budget surplus, which will require generating about Rs 2 trillion over and above the non-interest expenses. The tax target for the Federal Board of Revenue (FBR) is proposed to be 11 per cent of the GDP or Rs 14.3 trillion. The IMF would examine whether the government plans to take credibly realistic measures to back the new tax target, said the sources. The IMF has set multiple fiscal conditions, whose successful completion has so far helped smooth continuation of the programme despite initial setbacks. Pakistan has met the IMF targets for a primary budget surplus by the federal government, as well as net revenue collection and cash surplus targets by the four provinces. Against a primary surplus target of Rs 2.7 trillion, the federal government reported a surplus of Rs 3.5 trillion, or 2.8 per cent of GDP. The size of the federal budget still remains tentative due to redoing of defence needs and the government plans to announce less than Rs 18 trillion budget. The overall budget deficit target after incorporating large provincial cash surpluses is projected at 5.1 per cent of the GDP or Rs 6.7 trillion, the sources said.
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Business Standard
14-05-2025
- Business
- Business Standard
IMF to hold virtual talks on Pakistan's budget amid security concerns
The International Monetary Fund will on Wednesday hold virtual discussions on Pakistan's upcoming budget as the visit of its mission to Islamabad was delayed due to security concerns in the region. The federal government is planning to unveil the budget for fiscal 2025-26 on June 2. The International Monetary Fund (IMF) talks will continue until May 16. The global lender has appointed a new mission chief to Pakistan and the mission is now expected to travel to Islamabad over the weekend, subject to the security situation, government sources told The Express Tribune on Tuesday. The IMF mission delayed its scheduled arrival here on Tuesday due to uncertainty caused by the ongoing India-Pakistan conflict that has affected air travel across the region. Virtual discussions are expected to be held from today. For the second and final leg of the talks, the IMF team is expected to arrive in Islamabad on Saturday and stay until May 23, the source said. The IMF's Resident Representative to Pakistan Mahir Binici did not respond to a request for comment on the change in the travel plan. Finance Ministry spokesperson Qumar Abbasi also did not respond to questions on the change in the travel plans. Meanwhile, the IMF appointed Iva Petrova, a Bulgarian origin staff member, as new Mission Chief to Pakistan. She would join the discussions along with the outgoing Mission Chief Nathan Porter who served in the position for an extended term. Binici also did not comment on whether both outgoing and new mission chiefs would join both rounds of talks. Petrova, who holds a PhD degree in economics from the Michigan State University, has been serving as the IMF Mission Chief to Armenia. Previously, she had served with the missions to Israel, Iceland and Latvia. In Pakistan, the fiscal policy is expected to remain tight in the next fiscal year too. The IMF has asked Pakistan to make a budget on the assumption of having 1.6 per cent of the GDP primary budget surplus, which will require generating about Rs 2 trillion over and above the non-interest expenses. The tax target for the Federal Board of Revenue (FBR) is proposed to be 11 per cent of the GDP or Rs 14.3 trillion. The IMF would examine whether the government plans to take credibly realistic measures to back the new tax target, said the sources. The IMF has set multiple fiscal conditions, whose successful completion has so far helped smooth continuation of the programme despite initial setbacks. Pakistan has met the IMF targets for a primary budget surplus by the federal government, as well as net revenue collection and cash surplus targets by the four provinces. Against a primary surplus target of Rs 2.7 trillion, the federal government reported a surplus of Rs 3.5 trillion, or 2.8 per cent of GDP. The size of the federal budget still remains tentative due to redoing of defence needs and the government plans to announce less than Rs 18 trillion budget. The overall budget deficit target after incorporating large provincial cash surpluses is projected at 5.1 per cent of the GDP or Rs 6.7 trillion, the sources said. (Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)
Indian Express
14-05-2025
- Business
- Indian Express
IMF disburses USD 1.023 bn tranche to Pak; to hold virtual discussions about budget
The International Monetary Fund has disbursed a second tranche of USD 1.023 billion under the Extended Fund Facility programme for Pakistan, the central bank said on Wednesday. The disbursement of the second tranche comes on a day when the International Monetary Fund (IMF) is holding virtual discussions on Pakistan's upcoming budget as the visit of its mission to Islamabad was delayed due to security concerns in the region. The federal government is planning to unveil the budget for fiscal 2025-26 on June 2. The IMF talks will continue until May 16. The Central bank said the second tranche amount would be reflected in its foreign exchange reserves for the week ending May 16. The amount was approved last week by the IMF board under the ongoing Extended Fund Facility (EFF) and allowed an additional arrangement for the USD 1.4 billion Resilience and Sustainability Facility (RSF). The decision to release the funds came after the IMF expressed satisfaction on the first review of Pakistan's economic reform programme supported by the EFF Arrangement, the bank said. The IMF noted that Pakistan's policy efforts under the EFF had already delivered 'significant progress' in stabilising the economy and rebuilding confidence, amidst a challenging global environment. 'Fiscal performance has been strong, with a primary surplus of two per cent of gross domestic product achieved in the first half of FY25, keeping Pakistan on track to meet the end-FY25 target of 2.1 per cent of GDP. Pakistan's gross reserves stood at USD 10.3 billion at end-April, up from USD 9.4 billion in August 2024, and are projected to reach USD 13.9 billion by end-June 2025 and continue to be rebuilt over the medium term, it was pointed out. Meanwhile, the IMF talks that started virtually Wednesday will continue until May 16. The global lender has appointed a new mission chief to Pakistan and the mission is now expected to travel to Islamabad over the weekend, subject to the security situation, government sources told The Express Tribune on Tuesday. The IMF mission delayed its scheduled arrival here on Tuesday due to uncertainty caused by the India-Pakistan conflict that had affected air travel across the region. 'Virtual discussions are expected to be held from today. For the second and final leg of the talks, the IMF team is expected to arrive in Islamabad on Saturday and stay until May 23,' the source said. The IMF's Resident Representative to Pakistan Mahir Binici did not respond to a request for comment on the change in the travel plan. Finance Ministry spokesperson Qumar Abbasi also did not respond to questions on the change in the travel plans. Meanwhile, the IMF appointed Iva Petrova, a Bulgarian origin staff member, as new Mission Chief to Pakistan. She would join the discussions along with the outgoing Mission Chief Nathan Porter — who served in the position for an extended term. Binici also did not comment on whether both outgoing and new mission chiefs would join both rounds of talks. Petrova, who holds a PhD degree in economics from the Michigan State University, has been serving as the IMF Mission Chief to Armenia. Previously, she had served with the missions to Israel, Iceland and Latvia. In Pakistan, the fiscal policy is expected to remain tight in the next fiscal year too. The IMF has asked Pakistan to make a budget on the assumption of having 1.6 per cent of the GDP primary budget surplus, which will require generating about Rs 2 trillion over and above the non-interest expenses. The tax target for the Federal Board of Revenue (FBR) is proposed to be 11 per cent of the GDP or Rs 14.3 trillion. The IMF would examine whether the government plans to take credibly realistic measures to back the new tax target, said the sources. The IMF has set multiple fiscal conditions, whose successful completion has so far helped smooth continuation of the programme despite initial setbacks. Pakistan has met the IMF targets for a primary budget surplus by the federal government, as well as net revenue collection and cash surplus targets by the four provinces. Against a primary surplus target of Rs 2.7 trillion, the federal government reported a surplus of Rs 3.5 trillion, or 2.8 per cent of GDP. The size of the federal budget still remains tentative due to redoing of defence needs and the government plans to announce less than Rs 18 trillion budget. The overall budget deficit target after incorporating large provincial cash surpluses is projected at 5.1 per cent of the GDP or Rs 6.7 trillion, the sources said.
Express Tribune
14-05-2025
- Business
- Express Tribune
Budget talks with IMF start today
Listen to article The International Monetary Fund (IMF) will begin virtual discussions on Pakistan's upcoming budget on Wednesday (today), as the visit of its mission to Islamabad has been delayed due to security concerns in the region, government sources told The Express Tribune on Tuesday. The virtual talks will take place as the global lender has appointed a new mission chief to Pakistan. According to sources, the IMF mission delayed its scheduled arrival in Islamabad on Tuesday due to uncertainty caused by Indian aggression, which affected air travel across the region. However, the sources added that the mission is now expected to travel to Islamabad over the weekend, subject to the security situation. They emphasized that the adjustment would not adversely affect the work or the original programme schedule. The talks are set to begin on May 14 (today) and continue until May 16. "Virtual discussions are expected to be held. For the second and final leg of the talks, the IMF team is expected to arrive in Islamabad on Saturday and stay until May 23," the source said. The IMF's Resident Representative to Pakistan Mahir Binici did not respond to a request for comment on the change in the travel plan. Finance Ministry Spokesperson Qumar Abbasi also did not respond to questions on the change in the travel plans. Meanwhile, the IMF appointed Iva Petrova, a Bulgarian origin staff member, as new Mission Chief to Pakistan. She would join the discussions along with the outgoing Mission Chief Nathan Porter — who served in the position for an extended term. Porter was known for his firm stance on policy issues, but was averse to public interactions. He also kept a tight control over the Finance Ministry's media policy. Mahir did not comment whether both outgoing and new mission chiefs would join both rounds of talks. Petrova, who holds a PhD degree in economics from the Michigan State University, has been serving as the IMF Mission Chief to Armenia. Previously, she had served with the missions to Israel, Iceland and Latvia. The government of Pakistan is planning to unveil the budget for fiscal 2025-26 on June 2 — before the Eidul Azha holidays. This will be Finance Minister Muhammad Aurangzeb's second budget speech, which has to be in line with the parameters that the IMF will set during these talks. The fiscal policy is expected to remain tight in the next fiscal year too. The IMF has asked Pakistan to make a budget on the assumption of having 1.6% of the GDP primary budget surplus, which will require generating about Rs2 trillion over and above the non-interest expenses. The tax target for the Federal Board of Revenue (FBR) is proposed to be 11% of the GDP or Rs14.3 trillion. The IMF would examine whether the government plans to take credibly realistic measures to back the new tax target, said the sources. The size of the federal budget still remains tentative due to redoing of defence needs and the government plans to announce less than Rs18 trillion budget. The overall budget deficit target after incorporating large provincial cash surpluses is projected at 5.1% of the GDP or Rs6.7 trillion, they said. According to the sources, on the first day of talks the Finance Ministry would apprise the IMF mission of the fiscal developments during July-March period of the current fiscal year. It will also share details of supplementary grants approved during the fiscal year. The IMF has set multiple fiscal conditions, whose successful completion has so far helped smooth continuation of the programme despite initial setbacks. Pakistan has met the IMF targets for a primary budget surplus by the federal government, as well as net revenue collection and cash surplus targets by the four provinces. Against a primary surplus target of Rs2.7 trillion, the federal government reported a surplus of Rs3.5 trillion, or 2.8% of GDP. This higher surplus was primarily due to fully booking the annual central bank profit in the first quarter, with the entire estimated profit of Rs2.5 trillion already accounted for. The four provinces collectively generated a cash surplus of Rs1.028 trillion during the first nine months, exceeding the IMF target by Rs25 billion. The federating units also generated Rs685 billion in tax revenues, surpassing the IMF target by Rs79 billion. But against a nine-month revenue target of over Rs9.2 trillion, the FBR pooled Rs8.5 trillion, falling short of the goal by Rs715 billion. The IMF has also asked the government to give an update on any savings from the planned downsizing of the government. The next fiscal year's non-tax target will also be discussed during the first day of the talks, mainly the prospects of petroleum levy collection and the central bank profits. The FBR will give an update on the tax performance in April and the chances for the remainder of this fiscal year. The tax shortfall has ballooned to a staggering Rs830 billion in the first 10 months of the fiscal year, despite the government imposing record additional taxes and reducing refunds. Only in the month of April, the government added around Rs135 billion in the tax shortfall, breaching commitment to the IMF that the shortfall against the original annual target will not be more than Rs640 billion. The FBR has provisionally collected Rs9.3 trillion in taxes by the end of April. Though, the collection was around 27% or Rs1.95 trillion higher than the previous fiscal year, yet it is not enough to stay on track. The sources said that on the first day, the discussions will also take place on the so-called enforcement measures in the areas of track and trace, retailers scheme and compliance risk management. The FBR has miserably failed in all these areas and its collection is largely driven by the additional tax measures.
