The International Monetary Fund (IMF) will discuss details of the measures taken by the government in the budget during the upcoming talks with the Pakistani economic team in July 2011. Well-placed sources told Business Recorder on Tuesday that IMF's July mission would review the economic and policy developments undertaken by the government of Pakistan. "The mission will assess the overall stance of macroeconomic policies and associated reform measures," they added.
Sources said, "During the recent meeting of the Pakistani authorities with the IMF mission from May 11-17, the draft of the federal budget 2011-12 was discussed." However, the IMF team had reportedly expressed dissatisfaction over the government's proposed quantitative macroeconomic targets including a fiscal deficit of 4.5 percent arguing, instead, in favour of 4 percent.
Analysts maintain that the draft discussed in May has been considerably revised since then. However, while the final budget document may not have been discussed in detail as there was no meeting post-May 17 yet it is a foregone conclusion that the IMF team's quantitative targets have been adhered to in the budget as indicated by the 4 percent fiscal deficit.
Consequently the budget shows a fiscal deficit of 4 percent (Rs 810.64 billion in total terms) of GDP instead of 4.5 percent proposed previously (Rs 912 million) with associated changes in expenditure as well as revenue collection. The IMF team had also expressed dissatisfaction over the tax reforms initiated by the government as the statement issued on May 17 shows: "Pakistan's economy faces important challenges. Economic growth has been negatively affected by flash floods and the high oil price.
Inflation also remains persistently high and budgetary problems are undermining macroeconomic stability...continued efforts are needed to reduce the budget deficit to take the pressure off monetary policy and create space for more credit to the private sector. In addition, as the government debt has increased, debt management needs to be improved. Moreover, careful monitoring of the financial sector is needed to assure continuing financial stability.... Reducing the budget deficit will require higher revenue through tax reform to broaden the tax base, including steps to implement reforms in the general sales tax."
In the budget 2011-12, the ministry of finance took various taxation measures for example reducing standard rate of sales tax from 17 to 16 percent, abolishing 2.5 percent special excise duty (SED) on all items, abolishing federal excise duty on 15 goods and imposing 17 percent sales tax on 21 goods from 2011-12, and the Finance Bill (2011-12) has excluded 21 items from the Sixth Schedule of the Sales Tax Act for withdrawal of exemptions. But whether the IMF likes these budgetary taxation measures or not is still a big question.
The ministry of finance is quite optimistic that the Fund's upcoming visit in July for the fifth review under Stand-By Arrangement programme would end resulting in the restoration of the stalled amount worth $3.2 billion. But sources told this scribe, "It is too early to conjecture about the outcome of the mission."
Sources said, "Now it is the turn of the government to get the stalled $11.3 billion programme revived with the IMF because other donors are waiting for a green signal from the IMF." The IMF wants the government to focus on measures that could boost growth, increase revenue collection and stop wasteful expenditures. "Reducing the double digit inflation and narrowing deficit remains a key requirement," the official said explaining IMF point-of-view.
Sources disclosed that if Pakistan goes for a new loan programme from IMF then it might go for restructuring the public sector enterprises that includes shedding the workforce. "The IMF has given the directions to Pakistan for the implementation of measures aimed at transforming major public sector corporations into profit-making enterprises in preparation for their partial or complete privatisation. These corporations include PIA, Pakistan Railways, Pakistan Steel Mills, Pakistan Electric Power Company, Trading Corporation of Pakistan, and Pakistan Agriculture Storage and Supply Corporation.