The government is seeking performance targets from the International Monetary Fund (IMF) till end March 2011 (to be implemented within 23 days) to become eligible for fifth review in May 2011 with the objective of the release of the second last tranche prior to the end of the current fiscal year, highly placed sources revealed to Business Recorder.
Upon the release of the penultimate tranche the Finance Ministry may begin negotiations with the Fund staff for the sixth and final review under the Stand-By Arrangement (SBA) and would revisit conditions that may not be possibly complied with in the remaining period. This, the Finance Ministry sources argue, would enable the Fund to release a Letter of Comfort (LoC) that would automatically release budgetary support by multilaterals and bilaterals that would assist in containing the deficit.
The Finance Ministry, according to these sources, may seek another IMF programme where it would once again commit to a set of structural reforms that it would comply with this time around. One of the preconditions that the Finance Ministry may bring to the negotiating table with the IMF would be the implementation of the Reformed General Sales Tax (RGST).
On Monday chairing a meeting of provincial finance secretaries on implementation status of NFC, Finance Minister Dr Abdul Hafeez Sheikh said that fiscal deficit was a major challenge to the economy as well as for the donors and called for serious efforts by the provinces to curtail expenditure and mobilise revenue. This, he said, required efforts both by the federal and provincial governments to mobilise resources. The provinces need to effectively tax agriculture and real estate sectors, plug revenue leakages and streamline taxation system to increase tax to GDP ratio to at least 15% in next few years. This was agreed during the meeting that Federal Board of Revenue (FBR) would give a presentation on effectively taxing agriculture and real sectors as well as streamline the existing taxation system. The need to increase revenue collection from existing 9.8% of the GDP to 15% of the GDP by 2014-15 was agreed during the meeting.
An official said the PSDP releases had been massively squeezed in the first six month of the current fiscal year to contain the fiscal deficit at 2.9 percent due to failure to mobilise revenue. Only Rs 66 billion of PSDP, he said were released during July-December 2010-11 to achieve this target. Given the situation, he said revenue collection as well as expenditure control was critical for sustainable fiscal framework. He said that squeezing of the PDSP release had badly affected the ongoing projects and a large number of them were non-operational.
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