Pakistan is hopeful of settling a deal with the International Monetary Fund (IMF) on the revival of the suspended $11.3 billion standby arrangement at the conclusion of the weeklong talks with the fund’s officials in Dubai on May 17. A top government source said on condition of anonymity that Pakistan had already implemented the three main demands of the IMF in withdrawing tax exemptions to broaden the tax net, reducing the haemorrhaging power sector subsidies and taking steps to curtail the budget deficit at 5.3 percent of the Gross Domestic Product (GDP) during the current fiscal year.
With all these steps implemented, hopefully Pakistan would revive the suspended programme, he said, adding that the IMF had already assured Pakistan facilitation of the release of $1 billion in budgetary support from the World Bank and Asian Development Bank.
Talks between Pakistani and IMF officials have been going on in Dubai since May 11. The agenda revolves around the review of performance benchmarks for April and the next fiscal year budget. The finance minister will be holding talks with the IMF team from Sunday. The source said Pakistan was aiming to get the two remaining instalments released at the earliest but first the programme needed to be revived, after which the release of the pending funds would not be a big issue. “Their main worry on the broadening of the tax base would be set aside with the introduction of the Reformed General Sales Tax (RGST) along with the finance bill in parliament,” he said.
The government, he said, could not guarantee the approval of the RGST from parliament, as it was a prerogative of parliament to pass or reject it. However, he said, in case the bill was rejected, the government had an alternate plan ready for implementation. The government has drawn two strategies to enhance revenues: the strategy with RGST envisages collection of Rs 1.95 trillion during the next fiscal year; the alternate plan seeks collection of revenues to the tune of Rs 1.968 trillion as the sales tax rate would be retained at the 17 percent limit. When asked about the impact of the Osama bin Laden fiasco, the source said that the US had shifted its policy of imposing restrictions on countries.
“They will keep Pakistan engaged, as then they can keep pressurising us to do what they want,” he said. He said the new programme was discussed in every meeting with the IMF, as the repayment of loan from October 2011 could increase pressure on the foreign exchange reserves and on the exchange rate. This could reverse the whole stabilisation programme, which “everybody would like to avoid”.
