ISLAMABAD (June 23 2009): The imposition of fixed carbon surcharge on petroleum products was Pakistan's own decision to generate revenue and the International Monetary Fund (IMF) had no such conditionality attached to its multi-tranche assistance. Resident chief of the Fund in Pakistan, Paul Ross stated this on Monday, while talking to journalists after a seminar organised by Nust Business School (NBS) on global financial crisis and the role of IMF.

"The IMF did not ask Pakistan to impose fixed carbon surcharge on petroleum products. It was its own choice through which it wants to ensure revenue generation," Ross added. He said the IMF would pursue Pakistan's tax authorities to move towards value added tax (VAT) mode from 2010-11. He also confirmed that Pakistan and the IMF authorities will hold talks next month in Dubai to review the steps taken by the government in budget 2009-10. However, he showed reluctance to talk about the measures taken by the government to broaden the tax base in the outgoing fiscal year.

He was all praise for IMF programme in Pakistan, saying that it encouraged its development partners to make over $5 billion pledges during the Tokyo moot. Pakistan's economy is facing challenges and needs injection of $2 billion pledged by the Friends of Democratic Pakistan (FODP) in Tokyo for 2009-10, he added.

Commenting on Pakistan's request for additional $4 billion standby arrangement in case of delay in materialising funds from the FODP, he said, the executive board of the IMF is final authority to take a decision. The key challenges for Pakistan, he said, are to reduce vulnerability to external shocks, which increased manifold due to low revenue generation.

"The lowest tax to GDP ratio in the range of 9 percent also resulted in shrinking the liquidity for spending on development projects especially for social sector uplift projects," he added. He said that Pakistan applied for the IMF loan in November 2008 under 23 months standby arrangement programme after witnessing macroeconomic instability in last few years because the fuel and food shocks created fiscal imbalances. This swelled the fiscal deficit in 2007-08 after which the government had to borrow from the State Bank of Pakistan, which spiked inflationary pressure, he added.

The change of government also affected the foreign exchange reserves which started depleting along with the rupee depreciation, he said, adding that the government took a lot of time seeking funds from other external sources before formally joining the IMF programme as a last resort.

He said the IMF programme helped Pakistan in building foreign currency reserves, achieving stable exchange rate, controlling fiscal and external deficits along with enhancing the government's ability to generate resources through floating different kinds of T-bills. He said the IMF programme is focused on reforming the tax machinery, moving towards VAT mode.

Copyright Business Recorder, 2009