A three-member IMF mission has arrived in Islamabad. — File Photo
ISLAMABAD: A delegation of International Monetary Fund (IMF) will start on Thursday formal review of Pakistan’s economic performance during the 2009-10 fiscal year, with clear indications that the government will be facing difficulties in getting waiver on non-observance of criteria for the fourth consecutive term.
Finance ministry officials said the most difficult question facing the government was to convince the visiting IMF mission and then its executive board next month how the $11.3 billion IMF programme could proceed smoothly when the country had ended the year with a fiscal deficit at least 1 per cent above the committed 5.1 per cent of GDP.
Finance ministry officials said the most difficult question facing the government was to convince the visiting IMF mission and then its executive board next month how the $11.3 billion IMF programme could proceed smoothly when the country had ended the year with a fiscal deficit at least 1 per cent above the committed 5.1 per cent of GDP.
They said a three-member IMF mission had arrived in Islamabad and it would be joined by Adnan Mazarei, its Assistant Director for Middle East and Central Asia, later this week for discussions on the country’s economic performance during the year and also measures announced in the budget for stabilising the economy, expanding the tax net and improving public sector enterprises, particularly in the power sector.
During the previous review held in May some IMF directors had observed that it was the third review in a row with non-observance of targets in the key fiscal area, some of which had been relaxed. They had expressed disappointment over the slow progress in implementing important reforms and had focussed on introduction of broad-based value added tax and further increase in electricity tariffs.
“The situation has not improved since then. We have not been able to take many steps that had been agreed to with the Fund to improve macroeconomic indicators. In fact, the circumstances have worsened since May,” said a senior government official.
He said it would be difficult to defend the country’s overall fiscal deficit going beyond 6 per cent against the targeted 5.1 per cent. The federal and provincial governments equally contributed to the rising deficit, he said.
The revenue shortfall was one of the major causes of concern for the IMF. On top of that, the government has not been able to introduce VAT with effect from July 1 and there is no guaranteed roadmap for imposing reformed GST on October 1, 2010.
The officials said there was a need for tough political decisions in the next few days so that IMF directors could be persuaded to approve the release of the next tranche of about $1.3 billion in the first week of August and then complete the programme by December with a final tranche of $1.3 billion. Otherwise, the government would be left with no other option but to accept tough conditions for a follow-up IMF programme to meet huge budgetary gaps.
An official said estimates pointed to a 33 per cent increase in electricity tariff during the current fiscal year to overcome gap between power production cost and tariff recovery. He said the government envisaged a subsidy of Rs83 billion for the power sector for the current year but the overall expenditure on this count was estimated to touch Rs180 billion.
The fear, however, was that further increase in tariff could lead to increased power theft. He said that delayed decisions on energy tariffs had only given rise to the need for higher tariff increases down the line.
He explained that original estimates in July 2009 had suggested an average increase of Rs1.75 per unit but the tariff had to be increased by Rs2.25 per unit because of delayed implementation.
The official said that unless difficult political decisions were taken promptly, things would get worse, leading to the prospect of even more difficult decisions later
During the previous review held in May some IMF directors had observed that it was the third review in a row with non-observance of targets in the key fiscal area, some of which had been relaxed. They had expressed disappointment over the slow progress in implementing important reforms and had focussed on introduction of broad-based value added tax and further increase in electricity tariffs.
“The situation has not improved since then. We have not been able to take many steps that had been agreed to with the Fund to improve macroeconomic indicators. In fact, the circumstances have worsened since May,” said a senior government official.
He said it would be difficult to defend the country’s overall fiscal deficit going beyond 6 per cent against the targeted 5.1 per cent. The federal and provincial governments equally contributed to the rising deficit, he said.
The revenue shortfall was one of the major causes of concern for the IMF. On top of that, the government has not been able to introduce VAT with effect from July 1 and there is no guaranteed roadmap for imposing reformed GST on October 1, 2010.
The officials said there was a need for tough political decisions in the next few days so that IMF directors could be persuaded to approve the release of the next tranche of about $1.3 billion in the first week of August and then complete the programme by December with a final tranche of $1.3 billion. Otherwise, the government would be left with no other option but to accept tough conditions for a follow-up IMF programme to meet huge budgetary gaps.
An official said estimates pointed to a 33 per cent increase in electricity tariff during the current fiscal year to overcome gap between power production cost and tariff recovery. He said the government envisaged a subsidy of Rs83 billion for the power sector for the current year but the overall expenditure on this count was estimated to touch Rs180 billion.
The fear, however, was that further increase in tariff could lead to increased power theft. He said that delayed decisions on energy tariffs had only given rise to the need for higher tariff increases down the line.
He explained that original estimates in July 2009 had suggested an average increase of Rs1.75 per unit but the tariff had to be increased by Rs2.25 per unit because of delayed implementation.
The official said that unless difficult political decisions were taken promptly, things would get worse, leading to the prospect of even more difficult decisions later
-www.dawn.com
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