IMF requires assurances from all stakeholders: conditions agreed in fifth LoI review

The Inter-national Monetary Fund (IMF) requires broader political ownership and assurances from all stakeholders on the conditions that were agreed and formalised in the fifth Letter of Intent (LoI) submitted by the government to the Fund''s Board but not yet complied with.
Ishaq Dar of PML (N) confirmed to the media that Punjab Chief Minister Shahbaz Sharif and he (Dar) would meet with the IMF delegation led by Masood Ahmed, Director for Middle East and Central Asia and Adnan Mazaeri today (Tuesday). The invitation for the meeting was extended by the IMF.
An official, on condition of anonymity told Business Recorder that the federal government had extended assurances to the IMF in November 2010 that included measures to be taken both by the federal as well as the provincial governments. Without provincial support the federal government would be unable to meet the fiscal deficit target agreed with the Fund.
A critical component of the agreement between the Fund staff and the government of Pakistan during the fifth review was to ensure approval of the Reformed General Sales Tax bill from the parliament as well as the provincial assemblies. Provincial measures that were considered critical to the achievement of the fiscal deficit target included stamp duties and vehicle registration fee. The federal government in turn agreed to levy a 10 percent surcharge on withholding tax, 2 percent point increase in withholding tax on imports and 1 percent import surcharge.
Parliamentary approval for the Finance Amendment Ordinance 2010 and General Sales tax Bill 2010 envisaging a one-off flood tax on income as well as approval for the implementation of the controversial value added tax, renamed as reformed general sales tax by Dr Sheikh for greater public acceptability, is still pending.
Analysts maintain that the decision of the Fund team to meet with the representatives from the second largest party in parliament, PML (N), is part of a strategy to convince them to vote in favour of these revenue generating proposals. The adoption of a memorandum between federal and provincial governments setting levels of provincial surpluses/deficits for 2010-11 and introducing a mechanism to implement binding limits in this regard was also agreed during the November negotiations with the IMF.
Other conditions for completion of the review included Cabinet approval for power sector reforms inclusive of the politically unfeasible decision to reduce electricity subsidy and credit for commodity operation. The government has not been able to implement some of the relatively easier conditions which include progress in consolidating government funds into a single treasury account, passage of Banking Companies Ordinance and the passage of the State Bank Act by parliament to limit the government borrowing from the central bank.