Islamabad: Negotiations have begun between Pakistan and the International Monetary Fund (IMF) for a new $1 billion climate financing loan.
Government officials in the meeting did not support the proposal to impose a carbon levy, the IMF wants to introduce a carbon levy to raise funds for the promotion of new energy vehicles under its terms under the new $1 billion loan facility.
An IMF team is in Islamabad to finalize a new set of, according to an estimate, Pakistan will benefit from a $1 billion climate loan.
This will be Pakistan’s 26th IMF program but its objective is different from the traditional bailout for balance of payments. The talks between Pakistan and the IMF are taking place in the light of the World Bank’s Country Climate and Development Report.
Sources said one of the favorable conditions could be the implementation of a carbon levy, which lenders want Pakistan to impose on conventional fossil fuel-based vehicles. According to government estimates, 10% of total carbon dioxide emissions come from the transport sector and a massive funding and effort will be required to shift vehicles to cleaner sources.
The Ministry of Industries is busy finalizing a five-year New Energy Vehicles Policy. The ministry’s initial estimates show that if Pakistan is to replace combustion engine cars and motorcycles with clean fuel-based engines, it will need at least Rs155 billion in additional funding by 2030.
About 80% of Pakistan’s imported oil is used in the transport sector and switching to clean energy vehicles can save foreign exchange reserves. However, the transition is quite expensive, requiring subsidies to reduce the cost of vehicles and promote new infrastructure.
According to sources, traditional two-wheelers are up to 100% cheaper than new energy two-wheelers. A new energy three-wheeler will be up to 123% more expensive. The plan is that by 2030, up to 90% of new purchases of two and three-wheelers should be based on renewable energy sources.
Sources said that four-wheelers based on new technology are estimated to be 65% more expensive than combustion engines and the government wants at least 30% of new purchases to be based on new technologies by 2030. The Ministry of Industry is considering several measures, including zero federal excise duty, reduction in sales tax rate and zero withholding tax rate on purchases of new energy vehicles regardless of battery size. The loss in revenue is planned to be made through a new carbon levy.
Moreover, the Ministry of Energy informed the IMF about the steps being taken to promote new infrastructure. As far as the carbon levy is concerned, the government has not made up its mind on the matter, while government officials say that any commitment to the IMF regarding the imposition of new taxes will be given after the consent of Prime Minister Shehbaz Sharif.
It may be recalled that the IMF technical delegation arrived in Pakistan on Monday to negotiate a new loan for climate financing. According to Finance Ministry officials, the IMF delegation will stay in Pakistan until February 28.
