After a recent discussion with Pakistani authorities, the IMF technical team has taken a few steps toward discussing the introduction of a carbon levy likely to be imposed in the forthcoming budget as part of measures to increase Pakistan’s monetary support under the Resilience and Sustainability Facility. The IMF is likely to increase Pakistan’s current $7 billion loan under EFF by $1.2 billion to $1.5 billion, bringing its total to an amount ranging between $8.2 billion and $8.5 billion.
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Many of these conversations are centered around green initiatives including proposals to introduce a carbon levy in conjunction with the petroleum levy thereby increasing its limit to Rs20 per liter. The fund collected from this tax will be used for climate related development projects. However the Pakistani government has acknowledged that it can’t spend enough on the Public Sector Development Programme (PSDP) because of financial limitations, which has hampered the progress of key economic projects.
The PSDP poses a number of critical challenges such as lack of fiscal space, delays in project completion, cost overruns and capacity issues like late appointment of project staff. The government also has problems in providing operational and maintenance funds for existing assets. There is a need to set clear sectoral priorities in conjunction with improved financial feasibility tests for individual projects especially under the PPP model.
