The International Monetary Fund (IMF) has urged Pakistan to provide a draft of its forthcoming investment policy and to ensure transparency in the operations of the Special Investment Facilitation Council (SIFC). This request follows projections that consumer price index (CPI)-based inflation will average 12.7% for the 2024-25 fiscal year.
In a recent assessment mission, the Washington-based lender also inquired about the tax exemptions planned for the upcoming Special Economic Zones (SEZs) under the China-Pakistan Economic Corridor (CPEC). The IMF’s recommendations include the maximization of non-tax revenues, particularly through increasing the Petroleum Development Levy (PDL) to raise collections to Rs1.08 trillion, or by implementing a carbon levy to compensate for the zero rate of General Sales Tax (GST) on petroleum products.
Further, the IMF suggested imposing an 18% GST on petrol and diesel in addition to the PDL. The government is considering this proposal to prevent the levy from becoming part of the federal divisible pool (FDP) under the National Finance Commission (NFC) Award, which would require distribution to the provinces.
Despite ongoing discussions, the IMF team has not yet transitioned these engagements into formal negotiations for a new bailout package under the medium Extended Fund Facility (EFF). Diverging views between the IMF and Pakistani authorities on the macroeconomic framework for the next fiscal year remain a significant hurdle. The IMF has proposed a real GDP growth rate of 3.5% and CPI-based inflation at 12.7%, while the Ministry of Finance has projected a GDP growth of 3.7-4% and inflation in the range of 11-12%.
For the current fiscal year 2023-24, Pakistan’s GDP growth is anticipated to be between 2-2.5%, falling short of the official target of 3.5%.
Once the macroeconomic framework is finalized, it will inform various fiscal metrics, including Federal Board of Revenue (FBR) revenues, non-tax revenues, and expenditure estimates, particularly for debt servicing, which the IMF projects at Rs9.787 trillion for 2024-25.
Regarding the SIFC, Pakistani officials have informed the IMF that a new investment policy is under preparation and will be announced following thorough deliberations. The IMF emphasized the need for transparency in the SIFC’s operations and requested details on potential investments and the privatization plans for Pakistan International Airlines (PIA) and other state-owned enterprises (SOEs).
The IMF also asked about the tax exemptions for the four new SEZs under CPEC. The Board of Investment indicated that these SEZs, along with over two dozen others, will receive similar tax incentives. A draft of the upcoming investment policy with a focus on SEZs is to be shared with the IMF soon.
Despite the lack of formal negotiations, a senior Finance Division official expressed confidence that through close liaison via backdoor and diplomatic channels, a deal with the IMF could be secured after the budget is announced and approved by Parliament, aligning with the ongoing assessment visit’s discussions.
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