IMF team coming on March 1

ISLAMABAD:
The International Monetary Fund (IMF) has once again refused to hold talks for a fifth review of Pakistan’s economy and is instead sending a staff-level mission to gauge the government’s preparedness for implementing tough decisions, underscoring the trust deficit between the two parties.

An official of the IMF Islamabad resident mission told The Express Tribune that the mission would arrive on March 1. “The mission does not have a mandate to hold talks for a fifth review of economy,” said the official on condition of anonymity.

A finance ministry official said the IMF team would assess whether Pakistan was ready to take tough decisions.

An $11.3 billion bailout package, agreed in November 2008, has been suspended since June 2010 after the government failed to impose value added tax that is now being dubbed the reformed general sales tax. Recently, the collapse of the government and PML-N talks has also sent negative signals to the international community, observers believe.

The programme suspension has halted the release of the second last loan tranche of $1.7 billion. IMF has already extended the programme till September this year. So far, Islamabad has obtained $8 billion from the Fund.

The major thrust of the mission is to push the government to adhere to the financial discipline plan and for that it would give one-month budget deficit target while considering the trend of earlier two months, said another finance ministry official. The government would also present January-February income-spending accounts to the Fund.

Besides the controversy over RGST, the government is facing another uphill task to restrict the budget deficit to the agreed limit. For the current financial year, IMF had asked Islamabad to restrict the gap between income and spending at four per cent of the total size of economy or Rs685 billion. Later, the limit was increased to 4.7 per cent of gross domestic product (GDP) to create space for flood-related spending.

However, the finance ministry’s latest assessment has shown the deficit will be eight per cent of GDP by the end of June. During July-December, the deficit stood at 2.8 per cent of GDP.

Sources said the government would request IMF to at least relax the deficit limit to 5.8 per cent, adding IMF has informally indicated that it may relax the limit to 5.1 per cent.

The Federal Board of Revenue (FBR) faces a shortfall in the tax collection target for seven months as it has bagged Rs777 billion. It has proposed new tax measures of Rs36 billion and is envisaging to collect another Rs10 billion through recovery of tax arrears and broadening of tax base.

The proposals include levying flood surcharge at the rate of 15 per cent of payable tax and increasing special excise duty to 2.5 per cent from one per cent. However, a draft bill of the proposals is pending with the Standing Committee on Finance and Revenue.The annual tax collection target has been revised upwards to Rs1.630 trillion. FBR Chairman Salman Siddique recently stated that without new tax measures the authorities will not be able to collect more than Rs1.586 trillion, a gap of Rs46 billion.

Sources said the looming decision on whether to increase petroleum product prices from March 1 will be a litmus test for the government. If the government does not increase the prices, it will give a message that the country cannot take tough decisions, they added.

The petroleum ministry has worked out a 10 to 20 per cent increase in oil prices under two different formulas.