The International Monetary Fund (IMF) has asked Islamabad to comply with its program requirements during final deliberations on the budget. According to reports, the lender has asked the federal government to incorporate agricultural income tax into provincial budgets by the end of the first quarter of fiscal year (FY) 2025-26.

 

The lender expects respective authorities to implement agricultural income tax which neither the federal nor provincial governments have been able to decide upon. Moreover, the IMF has voiced its disapproval of the government’s intentions to utilize surplus power capacity by boosting power usage. 

 

Authorities in Pakistan reportedly attempted to get a waiver that would allow surplus power capacity to be provided at a lower rate. As per reports, the waiver would have created provisions for 7000 megawatts (MW) of electricity.

 

Islamabad’s motivation behind the provision of power at lower rates lied in increasing economic output. This is because lower power rates to new entrants would yield higher industrial output.

 

However, the IMF did not support the scheme as it believes that the current state of the economy is a direct consequence of the distribution of similar allowances in the past. 

 

The fund correctly outlined how this policy would serve to stifle competition in the domestic industrial sector as existing users of the national grid would be stuck paying hefty bills while new users would enjoy lower prices. According to reports, the IMF suggested that Islamabad stabilize the power sector and create a fair environment where new entrants are not protected by subsidized power.

 

The IMF’s stance on the provision of surplus power has led analysts to question whether the government will still honor their announcement to allocate 2000MW of power to crypto mining and AI data centers.

 

Data from reports suggests that the government intended to provide crypto miners with electricity at eight to nine rupees per unit. For reference, the base rate stands at a significantly higher Rs24 to Rs25 per unit, showcasing the magnitude of savings bitcoin miners would have enjoyed.

 

Moreover, reports indicate that the fund expects provincial governments to observe austerity measures by reducing expenditures. However, provincial governments are not steering clear of costly development plans.

 

According to the international creditor’s estimations, Pakistan’s provincial governments have surpassed their development budgets by a staggering Rs850 billion. Details from reports regarding the upcoming federal budget paint an alarming picture, suggesting that the provinces may fail to post budget surpluses in FY 2025-26.