ISLAMABAD: Following the revival of a stalled International Monetary Fund (IMF) programme, the World Bank has now also asked Pakistan to meet four prior actions during the ongoing fiscal year 2021-22 to get approval for a $350 million programme loan.
The conditions include bringing the centre and provinces under one General Sales Tax (GST) regime and amending Fiscal Responsibility and Debt Limitation Act (FRDLA) through Parliament.
The harmonisation of GST among the centre and provinces has remained a major outstanding issue before high-profile National Tax Council (NTC) as all parties concerned are making last ditch efforts to evolve consensus on the definition of goods and services, bringing uniformity related to GST laws, tax rates and scope of GST but have so far failed to get the desired results.
“We are still making progress on all these issues and the NTC is also scheduled to hold another important meeting in Islamabad today” top official sources confirmed local media.
Two remaining conditions of prior actions are removal of circular debt in line with Circular Debt Management Plan (CDMP) and recovery of arrears of power sector for approval of $350 million programme loan under Resilient Institutions Strengthening Program (RISE-II).
However, the PTI-led regime has been facing difficulties for moving ahead with harmonisation of GST among federation and federating units. It is yet to be seen how the government makes progress on harmonisation of GST. The GST on goods is the domain of the centre, while on services it falls under the jurisdiction of provinces in line with 1973 Constitutional arrangements.
In the wake of IMF programme revival, Islamabad can avail Letter of Comfort (LOC) for obtaining programme loans from multilateral creditors such as World Bank and Asian Development Bank (ADB). A top official of Finance Division, when contacted, said the government had made no request to enhance the loan amount from $350 million to $500 million.
“We are committed to implement the prior actions. The NTC meeting will also discuss prior actions as well” he added.
To a question, Additional Secretary External Finance Awais Manzur Sumra said: “The amounts of programme loans are decided/determined at the time of loan negotiations.
“We have not reached that stage in RISE-II. We remain committed to meeting the remaining prior actions,” Sumra added.
According to an official press statement, Federal Minister for Finance and Revenue Shaukat Tarin met with World Bank Country Director Najy Benhassine and his team at Finance Division on Tuesday. Secretary Finance and senior officers were also present there.
The meeting reviewed the progress on the ongoing World Bank’s projects and programmes in Pakistan with a focus on RISE-II, and discussed some prior actions to be met for the timely completion of the programme.
An official claimed the government wanted to increase the amount up to $500 million under RISE-II, mainly because the Asian Infrastructure Investment Bank (AIIB) had committed to provide matching funding as an equivalent amount in co-financing so the total amount might go up to $1 billion. But a Finance Division high-up said the government did not make any such request to World Bank.
Pakistan is negotiating another programme loan from the World Bank called Pakistan Programme for Affordable and Clean Energy (PACE)–II in order to reduce the monster of circular debt flow through reducing power generation costs, de-carbonising the energy mix, improving efficiency in distribution, and retargeting electricity subsidies.
The World Bank has so far committed $600 million for PACE-II, also shown on its website, but official sources said the bank might provide $300 million.
The loan amount has not yet been finalised but the official sources confirmed efforts would be made to get approval for these two programme loans from the World Bank during the second half of this fiscal year till June 2022.
With approval of programme loans in the second half, the overall disbursements of loans and grants were expected to go up because in first six months of this fiscal year, the government fetched over $9.4 billion mainly through commercial loans and international bonds.
The government is expecting only $5.7 billion from the multilateral creditors in the current fiscal and after securing letter of comfort from the IMF, the programme loans will be approved.
The improved loan disbursement is necessary for avoiding depletion of foreign exchange reserves, which nosedived to over $15.7 billion, held by the State Bank of Pakistan (SBP), on January 28, 2022.