IMF agrees to release installment

ISLAMABAD: The International Monetary Fund (IMF) has agreed to release the next instalment of $1.2 billion of the Standby Arrangement Programme. The decision followed assurances over the implementation of reformed General Sales Tax (GST) from October 1.

However, a final decision on the release of the loan tranche will be taken later by the IMF Board.

The Fund has also agreed to relax some of the economic targets previously set for fiscal 2010-11, according to a senior member of the Pakistani delegation. This includes a further reduction in the tax collection target from Rs1,604 billion earlier proposed by the Federal Board of Revenue, according to sources.

The IMF delegation expressed reservations about the expected failure to achieve the economic targets for the July-September quarter set during the last meeting between the two sides.

The failure to implement reformed GST, eliminate subsidies on electricity and limit government borrowing from the central bank were the issues raised by the IMF during the discussions.

The IMF added that the next instalment shall be contingent upon the fulfilment of economic targets agreed upon during the meeting.

In response, the Pakistani delegation explained that the delay in the implementation of reformed GST was due to the failure of negotiations between Islamabad and the provinces regarding the collection and distribution of GST on services.

However, they informed the IMF that reconciliation between the provinces and the federal government was likely soon.

The Pakistani delegation also provided a schedule for the elimination of subsidies on electricity and outlined a plan of action to meet the shortage of electricity and other economic challenges, sources said.

The IMF was apprised that economic targets will be revised downwards after estimates of flood losses are made available. They outlined the damages caused by massive flooding to the infrastructure and economy and offered a conservative estimate of $5 billion in losses. The delegation predicted that the agriculture sector will suffer the most in the aftermath of the floods and hence GDP growth will be stunted. The balance of payments will worsen as the trade deficit widens following increased imports of foodstuff and agricultural inputs.

As a result, the IMF has agreed to relax the conditions for the next instalment, but subsequently stressed the realisation of reformed GST schedule from October 1.

According to sources, the delegation will also attempt to obtain additional emergency funding of around $2 to $3 billion for the reconstruction of areas affected by the floods.

Published in The Express Tribune, August 27th, 2010.

Talks with IMF on: Pakistan seeks release of $2.6bn

ISLAMABAD: Under immense pressure from the International Monetary Fund over failing to make any headway on implementation of reformed GST on services and reducing power subsidy, Pakistan economic managers are not sure if they can convince the Fund for combine release of last two tranches amounting $2.6 billion, official sources told Dawn on Wednesday.
Sources said that the Pakistani delegation in the ongoing fifth review with the IMF at Washington was trying to convince the IMF Board to approve release of the two instalments $1.3 billion each in one-go.

“But there are serious difficulties mainly owing to the issues of power subsidy and implementation of reformed GST in October 2010,” the official added.

Finance Minister Dr Abdul Hafeez Sheikh on Wednesday also joined the Pakistani team, which is headed by the Secretary Finance.

The IMF has been informed about the difficulties faced by the government owing to colossal damages caused by the devastating floods across the country, the sources said.

Pakistan has missed the fiscal deficit target agreed with the IMF both at the conclusion of the last fiscal year and the same is expected for the current year due to the flood damages, while the policy of zero borrowing limit from the State Bank of Pakistan has been breached by Rs40 billion.

However, the sources said that the most serious issue was the failure of the government to eliminate subsidy on electricity from July 1, 2010 as was committed with the international donors.

Sources said that the IMF would be given assurances that the reformed GST on services would be implemented in the VAT mode from October 1, 2010.

Despite assurances being made by the Pakistani delegation to the IMF, no settlement has been made domestically over implementation of GST on services in the VAT mode.

In the last interaction between the federal finance ministry and the Sindh finance department on Sunday, the only decision made was that the issue would be resolved soon and both sides reiterated that the reformed GST on services would be implemented from October 2010.

Adviser to the Chief Minister Sindh Dr Kaiser Bengali criticised the federal finance ministry for failing to finalise the issue and said that the mode to implementation had been decided in June but it had yet to be approved and made a law.

“I have written two letters to the finance ministry while the CM Sindh has also written a letter to the prime minister, but nothing has been achieved,” Dr Bengali said, adding that the finance ministry was delaying the formal settlement for implementation of GST on services.

Sindh has suggested that all the taxes on financial services, advertising, construction and franchises be deposited in a pool and its distribution be made under the NFC formula.

While, Punjab has demanded the distribution on the basis of population of each province whereas Balochistan and Khyber-Pakhtunkhwa have supported Sindh over the issue, but the final settlement has yet to be achieved.

However, the sources said that the authorities anticipate that the IMF would agree to release the single tranche of $1.3 billion immediately after completion of the ongoing talks.[DAWN]