Release of $3.4 billion tranche: IMF formally asked to extend SBA to March 31

Islamabad has finally submitted its formal request, in writing, to the International Monetary Fund (IMF) to extend its standby arrangement (SBA)-a $11.3 billion bailout package-for three months, up to March 31, 2011.
"We had actually made the request to IMF for extension in SBA to secure two remaining instalments of $3.4 billion of $11.3 billion SBA in the second week of December knowing fully well that the deadline of December 31, 2010 was, for sure, going to be missed to bring in reformed general sales tax (RGST), a condition linked by the Fund for releasing to Pakistan the remaining $3.4 billion. But the submission of a formal request was intentionally kept a secret to keep the concerned authorities pushing those who were resisting RGST in the Parliament", said a Finance ministry official on Saturday. The government authorities in Islamabad are confident that IMF will accept Pakistan's request and would extend SBA till March 31, 2011 to help it get through parliamentary process to make law for imposing RGST.
Making RGST a law to enhance taxing to some key areas has emerged as a Herculian task for the Gilani government. It is facing tough resistance from within and outside the parliament. It, at the same time, is facing fiscal pressure as a result of less revenue and more expenditure. This imbalance is making inflows whatsoever and from whosoever these come more important for the government to keep reserves at a comfortable level to ensure timely payment of debt servicing as well as finances for major imports. Pakistan is in a situation when oil prices are on the rise and it needs huge foreign reserves to import required quantity of petroleum products. It also needs to be vigilant for having sufficient funds available for other imports like fertilisers and sugar which, of course, require huge amount in dollar terms.
The Finance Ministry, fully cognisant of the situation arising out of quickly depleting forex reserves, is knocking every door to let the other stakeholders feel the urgency and pave the way for early passage of the bill from the parliament to make the law to put in place RGST. The authorities are convinced that RGST is the best tool available with the government to not only stop leakage of taxes but also to bring some new areas in the tax net to broaden tax base and collect more taxes to increase the state income. The IMF and other donors are hard on the issue of Pakistan's income from taxes. They have, time and again, reminded Pakistani authorities that they need to give up existing lethargic attitude towards tax collection and require to introduce a better system, in RGST form, to substantially increase income from taxes. Since the government is under pressure as a result of rising expenditures, it showed firm commitment to IMF to impose RGST in the first half of the current fiscal year. The IMF accepted Pakistan's request, but linked release of two instalment of SBA, approved in 2008, with RGST implementation.
Although the bill has been introduced in both houses of the parliament and standing committee of the finance in upper house has cleared the draft on RGST, it is still pending with the standing committee of the National Assembly. The standing committee of finance of the national assembly is the real resistance in clearance of RGST bill and finally putting in the lower house for voting, the finance ministry official conceded.