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IMF sets 11 new structural benchmarks

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ISLAMABAD: The International Monetary Fund (IMF) has set 11 new structural benchmarks (SBs), reset the delayed and merged the two Financial Action Task Force (FATF) related benchmarks for ongoing reforms under the Extended Fund Facility (EFF) programme. IMF in its latest report second, third, fourth, and fifth reviews under the extended fund facility arrangement and request for rephasing of access released on Thursday noted that 11 new SBs had been set. The new SBs include: (i) establishment of the single treasury account (TSA-1) (end-May 2021) i.e. minister of finance will establish and make functional the TSA-1 by end May 2021, (ii) reintroduction of the track-and-trace system for tobacco products (end-June 2021); (iii) publication of awarded Covid-spending related contracts and beneficial ownership information of bidding and awarded legal persons on a centralized website (end-April 2021); (iv) publication of the Auditor General’s ex-post audit of the procurement of urgently needed medical supplies related to Covid-19 (end-April 2021); (v) reduction in CPPA-G payables to power producers through a payment up to Rs 180 billion (end-May 2021) with no more than one third in cash and remainder in debt instruments; (vi) completion of the fiscal year 2021 annual rebasing of the electricity tariff (June 1, 2021); (vii) finalization of the energy cross-subsidy reform for the fiscal year 2022 budget (end-June 2021); (viii) notification of the fiscal year 2020 Q4 electricity tariff adjustments for capacity payments (end-September 2021); (ix) parliamentary adoption of the OGRA Act amendments (end-June 2021); (x) publication of an external audit of the Utility Stores Corporation (USC) (end-April 2021) base on fiscal year 2020 financial; and (xi) establishment of a robust asset declaration system (end-June 2021). Reflecting capacity constraints and Covid-related difficulties, the government has experienced delays on three much-advanced reforms, including the: (i) GST and Personal Income Tax (PIT) reforms; (ii) full implementation of FATF actions 9 and 10 to improve the effectiveness of their AML/CFT regime (reset for end-June 2021); and (iii) update of the BISP beneficiaries’ database (reset for end-June 2021). They also missed the two continuous SBs on the avoidance of further tax amnesties and new preferential tax treatments after launching a temporary tax amnesty for construction in July 2020 (extended for one year in December 2020). The report noted that notwithstanding the challenges from the Covid-19 crisis, the authorities have continued to advance the programme’s structural reform agenda and achieved most of the SBs that fell due during this relatively long review period, albeit many with delays and supported by five prior actions (PAs), which are critical to ensure achieving programme fiscal objectives, financial viability of the power sector, and institutional strengthening. Parliament was scheduled to convene to adopt a corporate tax reform in March 2021 (PA) and the National Assembly received a mid-year budget review on time in February 2020. The amendments to the SBP Act were submitted to parliament in March 2021 (PA). In the energy sector, parliament was scheduled to convene to adopt amendments to the National Electric Power Regulatory Authority (NEPRA) Act (PA) and the cabinet approved a circular debt management plan (PA). The authorities also adjusted electricity prices and took first steps to reform energy subsidies (PA). Moreover, they submitted a new SOE law to parliament and published a triage of all SOEs in March 2021. They also published audits of key SOEs: Pakistan International Airlines and Pakistan Steel Mills in January and July 2020, respectively. The programme sets performance criteria and indicative targets for defined test dates as well as defines continuous performance criteria that apply throughout the programme period. The programme sets the following performance criteria: (i) floor on the net international reserves (NIR) of the State Bank of Pakistan (SBP) (millions of US dollars); (ii) ceiling on the net domestic assets (NDA) of the SBP (stock, billions of Pakistani rupees); (iii) ceiling on SBP's stock of net foreign currency swap/forward position (millions of US dollars); (iv) ceiling on the general government primary budget deficit excluding grants (cumulative flows, billions of Pakistani rupees); (v) ceiling on net government budgetary borrowing from the SBP (including provincial governments) (stock, billions of Pakistani rupees); and (vi) ceiling on the amount of government guarantees (stock, billions of Pakistani rupees). Continuous performance criteria include no new flow of SBP’s credit to general government and zero ceiling on the accumulation of external payment arrears by the general government. Indicative targets include floor on targeted cash transfers spending (BISP) (cumulative, billions of Pakistani rupees); floor on general government budgetary health and education spending (cumulative, billions of Pakistani rupees); floor on net tax revenues collected by the Federal Board of Revenue (FBR) (cumulative, billions of Pakistani rupees); ceiling on net accumulation of tax refund arrears (flow, billions of Pakistani rupees) and ceiling on power sector payment arrears (flow, billions of Pakistani rupees). Between end-December 2019 and end-September 2020, the last date for which indicative targets (Its) were set prior to the crisis, the authorities met several targets by large margins, including those on net international reserves, net domestic assets of the central bank, and no government borrowing from the SBP. They also met the target on targeted cash transfer spending at end-June 2020. However, they missed other fiscal targets, set prior to the pandemic, because of the need to make room for essential mitigation and support measures. Furthermore, they missed the target on government guarantees after conducting significant improvements in the database, with World Bank assistance, and identifying some previously omitted guarantees.—TAHIR AMIN