Pakistan imposes PKR 30 bn as additional taxes to prevent default on oil and gas payments

Pakistan is scrambling to arrange PKR 100 billion emergency funding to avoid international default on oil and gas payments

Pakistan's cash-strapped government has decided to impose an additional PKR 30 billion as taxes as it scrambles to arrange PKR 100 billion emergency funding to avoid international default on oil and gas payments and keep the staff-level agreement with the IMF intact, a media report said on Monday.

The decision was taken at a special meeting of the Economic Coordination Committee (ECC) of the Cabinet presided over by the Finance Minister Miftah Ismail on Sunday.

The Dawn newspaper reported that the budgetary commitment with the International Monetary Fund (IMF) for PKR 153 billion primary budget surplus could not be met without additional taxation.

The ECC also decided to examine reducing the price adjustments on a weekly or 10-day basis from existing fortnightly pricing to minimise price uncertainties, the report said.

The ECC “directed Finance Division and Federal Board of Revenue to submit a proposal for generation of PKR 30 billion through taxes within a week,” an announcement said after the meeting.

It also approved a supplementary budget grant of PKR 30 billion for the immediate payment to state-run Pakistan State Oil (PSO), which is facing international payment obligations of about PKR 270 billion till August 28, it said.

“For the smooth continuity of the oil and gas national supply chain and to avoid PSO from being default on international payments, the ECC decided to clear the outstanding payments accumulated during the period of the previous government,” it said.

Sources in the Petroleum Division said PSO’s receivables had touched PKR 608 billion on July 28, including PKR 340 billion from Sui Northern Gas Pipelines Limited (SNGPL) alone, the report said.

A factor was the Liquefied Natural Gas (LNG) supply that added a shortfall of PKR 213 billion since July 1, 2021.

SNGPL, on its part, had been constrained by delayed payments by the Central Power Purchasing Agency (CPPA) whose receivables jumped to PKR 113 billion from PKR 43 billion since January 1, 2022.

CPPA had another PKR 182 billion directly payable to PSO on account of fuel supplies, including PKR 16 billion accumulated since July 1, 2022.

The petroleum secretary said PSO was raising calls to avoid international default as delay in payments by respective entities had exhausted its liquidity.

As a result, the company has not been able to deposit PKR 81 billion to the government’s local currency (NIDA) account for onward transmission to Kuwait Petroleum Corporation (KPC) which is contractual obligation.

PSO was unable to deposit PKR16 billion to the government against an integrated term finance certificate (ITFC) facility, which has been deferred to avoid PSO’s international contractual obligations.

Despite these challenges PSO had met its contractual international payments in July, 2022 but “this will not be possible in August,” which will result in the disruption of the supply chain, the report added.