An International Monetary Fund (IMF) team is in Pakistan for discussions with the Finance Ministry on tariffs and taxes amid signs Pakistan is dragging its feet over mandated reforms. A ministry official confirmed on Friday the IMF team's presence and said a meeting between the ministry and the fund in Washington had been delayed again, the third such postponement of a review of an $11.3 billion loan.
He gave no reason for the delay in the approval of the fifth tranche totalling $1.2 billion. "The board meeting for the IMF to review Pakistan's performance and for the approval of the fifth tranche as of this morning is scheduled for April 27," said the official, who declined to be identified.
While it is unclear why the meeting was pushed back, the move appears to relate to Pakistan's slow pace in implementing reforms as mandated in the loan's conditions. "The IMF wants a commitment for a 6 percent increase in power tariffs immediately and the implementation of VAT (Value Added Tax) by July 1," said the official.
Under the IMF programme, the deadline for the increase in electricity tariffs was April 1 but Pakistan failed to meet it. The IMF also required Pakistan to submit a VAT law to parliament by the end of December 2009, but VAT on services is a provincial issue and so requires approval of the country's four provincial assemblies.
They approved the new tax only recently, missing the IMF's deadline. Another official source confirmed the IMF team was in Pakistan for talks. The IMF wants Pakistan to use the VAT to raise its ratio of tax revenue to gross domestic product by 3 to 4 percent, allowing greater government spending.
The current tax-to-GDP ratio is about 9 percent, one of the lowest in the world. The IMF was originally scheduled to meet on March 24 to approve the fifth tranche but the meeting was postponed to March 31, and then delayed again to mid-April, sparking speculation in the Pakistani media that the programme was in jeopardy.
At the time, a Finance Ministry official played down the delay and said it was "not a big issue". Pakistan turned to the IMF for an emergency package of $7.6 billion in November 2008 to avert a balance of payments crisis and shore up reserves. The loan was increased to $11.3 billion in July and the central bank received a fourth tranche of $1.2 billion on December 28. The fifth tranche will be the same amount.
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