Infrastructure investment after floods: Pakistan should take revenue-raising measures: IMF

The International Monetary Fund (IMF) has said that Pakistan will have to take revenue-raising measures after the recent floods to enhance resources for needed infrastructure investment.
Caroline Atkinson, Director of the External Relations Department of the International Monetary Fund said during a press conference that the IMF is working closely with the government of Pakistan to try to get the programme back on track but it would involve some revenue-raising measures so that the country could have the resources for needed infrastructure investment and especially after the floods.
After the failure of the federal government in imposing the Sales Tax Bill 2010 that is called Reformed General Sales Tax (RGST), the IMF refused to release the bailout package worth $1.7 billion to Pakistan last year, the second last tranche of the $11.3 billion Stand By Arrangement facility.
The government wants to postpone measures such as the imposition of RGST and the power sector reforms till July, 2011 while its fiscal deficit is increasing gradually that is more likely to exceed 7 percent of the overall economic output against its target of 4.7 percent fiscal deficit set for 2010-11. The government is attributing failure to comply with respect to expenditure targets to the recent devastating floods. According to an assessment jointly undertaken by the World Bank and the Asian Development Bank, the total loss was about $10 billion.
The IMF has already pointed out the withdrawal of the oil price rise by the government of Pakistan following pressure from the opposition. It was emphasised that subsidies on energy and petroleum products are inefficient because the higher-income individuals and the large companies also get the overall benefit from these subsidies.
On November 24, 2008, the Executive Board approved a 23-month SBA in an amount equivalent to SDR 5,169 million (500 percent of quota). On August 7, 2009, the arrangement was augmented to SDR 7,235.9 million (700 percent of quota) and extended through December 30, 2010. Following the completion of the fourth review on May 14, 2010, purchases under the arrangement reached SDR 4,936.04 million. Separately, to help the authorities cope with the catastrophic floods that affected Pakistan this summer, the Executive Board approved on September 15, 2010 the disbursement of SDR 296.98 million (28.73 percent of quota) under the policy on emergency assistance for natural disasters.
The fifth review, originally scheduled to take place before end-September 2010, has been delayed. The structural benchmark on implementing a value added tax on July 1, 2010 and the end-June 2010 performance criteria on general budget deficit and government borrowing from the central bank were missed. Subsequently, the economic conditions deteriorated markedly as a result of floods, requiring significant amendments to the 2010/11 budget. Corrective actions needed to complete the fifth review could thus not be implemented before the expiry of the SBA.
On December 17, 2010, the authorities sent a letter to the IMF requesting a nine-month extension of the Stand-by Arrangement (SBA) through September 30, 2011 in order to implement the policy measures needed to complete the two reviews and to enable two purchases of approximately SDR 1.15 billion. The decision on this request remains pending.