The International Monetary Fund (IMF) has said that its Mission will continue discussions with the Government of Pakistan (GoP) under the fifth review, as planned, even if the latter withdraws the increase in the price of oil and products, sources close to the International Monetary Fund (IMF) told Business Recorder here on Wednesday.
Even if the government of Pakistan is compelled to withdraw the recent increase in prices of oil and products due to political pressure, the Fund would continue discussions with the government of Pakistan under the fifth review in accordance with the Stand-By arrangement programme, sources added.
The government announced an increase in oil prices by 9.9 percent on Monday. However, in spite of this rise, inclusive of a significant rise in the Petroleum Levy (PL), the government would still face a loss of Rs 5 billion a month in its collections under PL.
In its request to the IMF Fund for an extension of Stand By Arrangement program the government in the 'Letter of Intent' dated December 17, 2010, stated: 'We hereby request that the SBA be extended for a further nine months, to enable us to implement the policy measures envisaged under our reform program, and to allow sufficient time to complete the remaining fifth and sixth reviews under the SBA. In pursuit of our program objectives, we have submitted to the National Assembly the federal part of the legislative package for the reformed General Sales Tax and the provincial part of the package will be submitted to the provincial assemblies shortly. We have also made progress in devising a plan to ensure financial viability of the electricity sector'.
The statement made by the IMF on the occasion of the 2010 Pakistan Development Forum on November 15, 2010 emphasised that "Structural reforms are needed to improve budgetary performance. Two areas stand out. One is the reformed general sales tax (RGST), including an effective input-crediting mechanism, reduced exemptions, and elimination of zero-rating and special rates. The other is electricity reform, where action is needed to eliminate untargeted subsidies while addressing load shedding and protecting the poor, and address the problem of circular debt".
Sources told this scribe that given that the RGST is unlikely to be passed by parliament and further given the failure of the government to eliminate the inter circular debt and implement power sector reforms if the government withdraws its decision on the increase in oil prices, then it will become almost impossible for it to convince and satisfy the IMF team about its performance and commitment to the agreed reform agenda during the remaining four months of the current fiscal year, 2010-11. "The government is already aware of the fact that if it fails to satisfy the Fund, then it will lose the opportunity to avail the second last tranche worth $1.7 billion from IMF in the current fiscal year that ends June 30".
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