Pakistan and the International Monetary Fund (IMF) have commenced policy-level discussions on the next tranche of the $7 billion loan program, with the review set to continue until March 14.

According to officials from the Ministry of Finance, the IMF delegation will assess the country’s progress in implementing economic reforms under the program’s conditions.

The discussions will also include consultations on budget proposals for the upcoming fiscal year, with a particular focus on taxation and energy sector reforms.

Proposed taxation measures

Sources indicate that the IMF has put forth several taxation measures, including a Rs 2.80 per unit surcharge on electricity bills and the imposition of carbon tax on petrol and diesel.

In an alternative proposal, the Fund has suggested increasing the petroleum levy from Rs 60 to Rs 70 per litre. Additionally, a carbon levy on coal-fired power plants and industrial boilers is under consideration.

These measures are part of broader fiscal adjustments aimed at addressing Pakistan’s economic challenges, particularly in the energy sector, which remains burdened by mounting circular debt.

As part of the negotiations, the privatization process of state-owned enterprises, including Pakistan International Airlines (PIA), will also be reviewed.

Energy sector and circular debt crisis

The government has already secured an agreement to take a Rs 1,250 billion loan from commercial banks at a 10.8% interest rate to control the circular debt in the energy sector.

Additionally, the IMF has rejected a proposal to extend the winter relief package for the industrial and agricultural sectors and has urged the government to implement gas tariff adjustments for captive power plants.

Earlier, the IMF had also turned down a proposal to abolish the General Sales Tax (GST) on electricity bills, a move that had been intended to provide relief to consumers amid rising power costs.

Revenue collection and tax reforms

To broaden the tax net, the government plans to collect Rs 250 billion in taxes from various sectors, including retail, through a combination of trader-friendly schemes, compliance risk management, and administrative measures. Proposals for tax relief in real estate, property, beverage, and tobacco sectors are also being discussed, with IMF’s approval required before implementation.

Additionally, there is a proposal to reduce the tax burden on the salaried class in the next budget, which, if approved, could provide some relief to middle-income groups.

Despite these stringent conditions, officials at the Finance Ministry remain optimistic about a successful outcome from the negotiations. They believe that securing the next $1 billion tranche from the IMF’s Extended Fund Facility (EFF) will boost industrial activities and generate employment opportunities.

If the negotiations proceed smoothly and Pakistan meets the IMF’s conditions, the final approval for the next tranche will be granted by the Fund’s Executive Board. The ongoing talks hold significant implications f