Pakistan’s headline inflation is likely to lose more steam over the next two months, coming down to around 8-9%, the Finance Division said on Friday, expressing optimism about economic stability.

In its ‘Monthly Economic Update and Outlook’, the ministry reported that the Consumer Price Index (CPI) fell to single digits in August 2024, marking a 34-month low, and is projected to decline further in the short term.

Inflation for August stood at 9.6% on a year-on-year basis, compared with 27.4% in the same month a year earlier, the report showed.

The ministry also noted that Pakistan’s economy had shown signs of recovery in the first two months of fiscal year 2025.

“Inflation has dropped to single digits, industrial output has strengthened, and major export sectors have experienced growth, suggesting an optimistic export outlook,” the report added.

According to the report, the current account deficit (CAD) contracted, while the fiscal sector remained resilient, mainly attributed to prudent measures. “This trajectory is expected to continue in the coming months.”

KARACHI – Pakistan Power Reforms Project was officially launched at an event co-hosted by the School of Business Studies at the Institute of Business Administration (IBA) and the Ministry of Energy (Power Division).

In a keynote address, the Federal Minister of Power Sardar Awais Laghari outlined a comprehensive roadmap aimed at transforming the country’s energy sector to enhance efficiency and stimulate industrial and economic growth.

Minister emphasized that structural reforms will be multifaceted, with tangible results expected in the coming months. Key initiatives include improving governance standards for distribution companies and radically transforming the transmission infrastructure to reduce losses and enhance operational efficiency.

Addressing the issue of surplus generation capacity, the Minister highlighted plans to stimulate industrial demand through various interventions, which are expected to accelerate growth in the industrial sector.

A significant focus was placed on tariff structures, with the Minister noting that front-loaded debt repayments have significantly contributed to capacity charges. By utilizing various policy levers, the government aims to rationalize prices and transition towards a competitive market regime that rewards efficiency, moving away from the existing cost-plus model.

The upcoming policy encouraging the adoption of Electric Vehicles (EVs), particularly two- and three-wheelers, was also a highlight of the discussion. This initiative is expected to increase electricity demand while reducing household transportation costs and cutting down the import bill associated with fuel.

Laghari pointed out that Pakistan boasts one of the cleaner energy mixes globally, with over 55% of electricity generated from renewable sources, including hydel and nuclear. This figure is projected to exceed 70% in the coming years, with nearly 75% of electricity generated from indigenous sources, anticipated to rise above 90%.

The event concluded on a positive note, underscoring a commitment to a reform agenda that aims to improve governance standards and efficiency in electricity generation, transmission, and distribution. These reforms are expected to lower electricity prices, ultimately triggering industrial and economic growth throughout the country.

International Monetary Fund (IMF) Managing Director Kristalina Georgieva has linked the recently approved fresh loan programme for Pakistan with the country’s economic recovery and an improvement in tax fairness.

Taking to X, Georgieva referred to her meeting with Prime Minister Shehbaz Sharif and said: “Very productive meeting with Pakistan PM @CMShehbaz! We discussed Pakistan’s new Fund-supported program helping ongoing recovery, disinflation, increased tax fairness, and reforms to create new jobs and inclusive growth.”

The top IMF official’s remarks come after the lender’s Executive Board approved the $7 billion Extended Fund Facility (EFF) for Pakistan under which the first tranche of $1.1 billion likely to be released by September 30, 2024.

Faced with chronic mismanagement, Pakistan’s economy has found itself on the brink, challenged by the Covid-19 pandemic, the effects of the war in Ukraine and supply difficulties that fuelled inflation, as well as record flooding that affected a third of the country in 2022.

With its foreign currency reserves dwindling, Pakistan found itself in a debt crisis and was forced to turn to the IMF, obtaining its first emergency loan in the summer of 2023.

The latest bailout, coming to Pakistan in the form of loans, follows a commitment by the government to implement reforms, including a major effort to broaden the country’s tax base — a measure reflected in the tax-heavy budget passed earlier this year by the incumbent administration.

Furthermore, IMF Pakistan Mission Chief Nathan Porter has confirmed that multiple friendly nations have given “significant financing assurances” to Islamabad linked to the bailout package which go beyond the agreement to roll over $12 billion in bilateral loans owed to these countries.

Sources in the Ministry of Finance have said that the interest rate on the loan is less than 5% and the lender might even disburse the second instalment within this fiscal year.

The key priorities, as reported by The News on Friday, under the new EFF-supported programme include: (i) rebuilding policy making credibility and entrenching macroeconomic sustainability through consistent implementation of sound macro policies and a broadening of the tax base; (ii) advancing reforms to strengthen competition and raise productivity and competitiveness; (iii) reforming the state-owned enterprises (SOEs) and improving public service provision and energy sector viability; and (iv) building climate resilience.

Earlier, reacting to the development, PM Shehbaz voiced satisfaction over the approval of the loan programme and thanked Georgieva and her entire team along with friendly countries, particularly Saudi Arabia, China, and the United Arab Emirates (UAE) for their support in securing the new loan programme.

Meanwhile, during his meeting with IMF’s Georgieva, the PM highlighted the government’s commitment to implementing structural reforms and promoting private sector development, the publication added.

He also appreciated the lender’s technical assistance and capacity-building programmes, which helped strengthen the country’s institutions and improve its economic management.

Meanwhile, the IMF managing director underscored the importance of maintaining macroeconomic stability and promoting inclusive and sustainable growth.

The two leaders also agreed to strengthen cooperation between the government and the IMF to promote economic stability and growth.

Speaking to Geo News earlier in the week, Georgieva had underscored the positive effects of home-defined and Pakistan-owned reforms.

Growth is up inflation is down and the economy is on the sound path [….] The government aims to collect taxes from the rich and strengthen the Benazir social programme to support the poor,” she had said while confirming the new loan programme’s approval.

ISLAMABAD: Finance Minister Muhammad Aurangzeb has warned non-filers of strict restrictions which will “further limit their ability to conduct various activities,” as Pakistan secured International Monetary Fund (IMF) Executive Board’s approval for a $7 billion Extended Fund Facility (EFF).

A day earlier, the Washington-based lender sealed the deal with Islamabad, approving Pakistan’s loan with its first tranche of $1.1 billion likely to be released by September 30, 2024.

The interest rate on the loan is less than 5%, sources in the Ministry of Finance said, adding the IMF may disburse the second instalment within this fiscal year.

The cash-strapped country had to undertake a slew of measures demanded by the IMF, including broadening the tax next, enforcing tax on agricultural income, and increasing the electricity and natural gas prices.

In an interview with Voice of America today, the FinMin emphasised that fundamental economic reforms were needed to make the existing IMF programme “the last one for the country”.

“Transformation of the economy into an export-driven one necessitates structural reforms, only then could the country move forward in the next three years.”

Aurangzeb said, the friendly countries have assured financial support to meet the financial needs through the new Fund programme.

“We had no choice but to implement economic reforms, which included bringing sectors currently outside the tax net into the fold,” he noted.

However, the minister said, the burden on salaried and manufacturing classes would be reduced and highlighted the need to bring into tax net the retailers, wholesalers, agriculture, and property sectors.

He said that despite a 29% increase in revenues last year, the tax-to-GDP ratio remained at 9%, which is insufficient to stabilise any country’s economy.

In line with the conditions of IMF — which had repeatedly demanded improved tax collection, the federal government presented the tax-loaded Rs18.877 trillion budget for the fiscal year 2024-25 (FY25) in June.

The budget aimed at raising Rs13 trillion by next July, a roughly 40% increase from the current financial year, to bring down a ruinous debt burden that has caused 57% of government revenue to be swallowed by interest payments.

In response to a question, Aurangzeb mentioned that the government was abolishing the term “non-filer” and will impose restrictions on tax evaders, limiting their ability to conduct various activities.

On Tuesday, the Federal Board of Revenue (FBR) announced a series of restrictions targeting non-filers to enhance tax compliance and broaden the tax base by abolishing the non-filer category, as per The News report.

The initial restrictions include purchasing property, buying cars, investing in mutual funds, opening current accounts and engaging in international travel, except those for religious purposes.

Elimination of the non-filer category means that individuals who previously paid a small fee to avoid taxes on these transactions will no longer be able to evade tax obligations.

In today’s interview, the finance minister also noted that the government possesses data on individuals’ lifestyles, including the number of vehicles owned, international travel, and other expenditures. This information will enable the FBR to bring tax evaders into the tax net without arrest, he added.

He pointed out that Pakistan’s undocumented economy has been valued at Rs.9 trillion, which needed to be documented.

“Prime Minister Shehbaz Sharif believed that business should be handled by the private sector and not by the government. To achieve this, the cabinet’s privatisation committee has advanced the privatisation process of government institutions to its final stages”, he added.

PM Shehbaz meets IMF chief

On Thursday (today), Prime Minister Shehbaz Sharif held a meeting with Managing Director of the International Monetary Fund (IMF) Kristalina Georgieva on the sidelines of the UNGA in New York.

Appreciating the collaboration with IMF for a successful Staff Level Agreement (SLA) for a 37-month, $7 billion Extended Fund Facility (EFF) for Pakistan, the prime minister highlighted the government’s commitment to implementing structural reforms and promoting private sector development.

He also appreciated the IMF’s technical assistance and capacity-building programs, which have helped strengthen the country’s institutions and improve its economic management.

The IMF managing director expressed the Fund’s support for Pakistan’s efforts and emphasised the importance of maintaining macroeconomic stability and promoting inclusive and sustainable growth.

During the meeting, they also discussed the urgent need to mobilise adaptation financing for climate change.

The prime minister agreed to have the finance minister take up this critical issue with senior management at the IMF during the Annual Meetings in October.

The two leaders also agreed to strengthen cooperation between the government and the IMF to promote economic stability and growth.

— With additional input from APP