ISLAMABAD   -  Talks between Pakistan and International Monetary Fund (IMF) for new loan programme ended inclusively on Friday mainly due to the differences on increasing taxes to control deficit in upcoming budget.

The government and the IMF were supposed to announce a staff-level agreement yesterday (Friday). However, talks are extended for another two days to make a breakthrough after both sides failed to make consensus on loan deal. “Pakistan and the visiting IMF Mission have made good progress in their discussions. Consultations will continue over the weekend,” the ministry of finance said in a brief handout.

Pakistan has accepted all IMF’s conditions except imposing taxes worth of Rs700 billion in budget for next fiscal year. The IMF is asking Pakistan to impose massive taxes equivalent to 1.7 percent of the GDP (Rs700 billion) to control the widening budget deficit. However, the government believes that massive taxation would result in increase in inflation rate, which is already on the way up. Inflation had touched 5-year highest level of 9.41 percent in March this year. The government has assured the Fund that it would impose taxes worth of Rs500 billion while rest of the amount could be collected through enforcement measures. However, the proposal was turned down by the IMF.

However, Pakistan has accepted other condition of the Fund. The government has also assured to increase the gas and electricity prices in different phases to eliminate the subsidies. The government would withdraw subsidy worth Rs340 billion in next three years, which has been given on electricity and gas prices.

The government has also assured the IMF that it would not interfere in the matters of OGRA and NEPRA in fixing gas and electricity prices respectively. This was one of the main demands of the IMF, according to sources. Meanwhile, Islamabad has also given assurance to the IMF that it would not interfere in market to control the value of currency as it did in the past. Pakistan has also assured the visiting delegation about the privatisation of public sector entities and restricting budget deficit.

Talks between Pakistan and IMF had started on April 29 in Islamabad, which continued till May 10. However, talks would continue for further two days. It is expected that the loan size will be equal to about 225 percent of Pakistan’s quota or $6.5 billion. Pakistan would also receive loans from World Bank (WB) and Asian Development Bank (ADB) after finalising deal with the IMF. The WB would disburse $7 billion loan to Pakistan in next few years while the country would also receive loans from the ADB and IFC. Pakistan would issue bonds in the international market.

In October 2018, Pakistan had formally approached International Monetary Fund (IMF) for bailout package to avert the balance of payment crisis. Pakistan and IMF had started talks for the loan programme in November last year, which ended inconclusively after Islamabad refused to accept conditions like depreciating currency, increasing taxes and electricity tariff. However, the talks were continued through video-link in which Islamabad had started accepting IMF’s conditions.