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Talks extended for two days: IMF demands govt withdraw power subsidy

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ISLAMABAD(Republic policy): Technical level talks between International Monetary Fund (IMF) team and Pakistani authorities have been extended for two more days on power sector with the fund demanding withdrawal of power subsidy to the export-oriented sector and additional taxes.
Sources said that technical level talks with the Fund continued on Sunday and will continue today on power sector, one of the major challenging areas. They added that the Fund is demanding additional tax measures including increase of one percent in the standard rate of sales tax to bridge the revenue shortfall. However, they added that any decision would depend on the revenue gap to be determined during the policy level talks.
We have prepared various proposals and measures to be taken would be decided after knowing the revenue gap. Completion of 9th review is vital for Pakistan at this point in time to ensure external inflows according to these sources.
When asked about power sector, a source said that the IMF has been pressing for withdrawal of power subsidy of Rs100 billion provided to the export-oriented sector and want full recovery of Rs952 billion power sector’s gap through increase in power tariff. However, the government side has been trying to explain to the IMF team that it would be difficult to settle the entire amount. When asked how much power subsidy was provided to the export sector, sources said Rs50 billion has been disbursed. “Power sector remained a major challenge during the technical-level talks” they added.

The second phase of policy-level talks would start from tomorrow and will continue till February 9 on the Memorandum of Economic and Financial Policies (MEFP).

On the fiscal side, the sources confirmed that a one-off flood levy was on the table that is estimated to field around Rs 180 billion. They did not rule out a major cut in the public sector development program (PSDP) to curtail the fiscal deficit. The cost of debt servicing consequent to recent devaluation has increased to Rs 5.2 trillion, which means that fiscal deficit would be over seven percent they added.

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