The economic situation and the policy stance taken by the government of Pakistan, including the 2011/12 budget, will be assessed in July by the International Monetary Fund (IMF) team prior to taking a decision on restoring the stalled $3.2 billion under Stand-By Arrangement (SBA).
Well-informed sources told Business Recorder here on Tuesday that in the coming July, an IMF mission would assess the policy measures approved by parliament contained in the budget as well as their implementation. Notable amongst policy measures that may balance in favour of the restoration of the SBA is the implementation of reformed general sales tax, energy sector reforms and reduction of circular debt. The Fund in a note placed on its website on May 17, 2011 stated, "The International Monetary Fund (IMF) remains committed to the ongoing dialogue with Pakistan and discussions will continue in the weeks ahead and a mission is planned for July 2011."
Repayment under the SBA would begin in 2011-12 irrespective of whether the Fund releases the penultimate tranche after the July mission or not. IMF has already given some qualitative to the government of Pakistan considered as prerequisites for the reactivations of the stalled SBA. These measures as per the May 17 note include, "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...... The quality of expenditure could be improved by increasing the share of spending on health, education, and infrastructure.
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 government debt has increased, debt management needs to be improved. Moreover, careful monitoring of the financial sector is needed to assure continuing financial stability".
Quantitative measures are not contained in the International Monetary Fund (IMF) note. However there is a general consensus that these were handed over to the government of Pakistan during meetings between 11-17 May in Dubai and these include under 4 percent fiscal deficit (Rs 810.64 billion in total terms) instead of 4.5 percent proposed by the government (Rs 912 million), with associated changes in expenditure as well as revenue collection. Sources said that Pakistan needs to reduce the ill-targeted subsidies to provide space for greater pro-poor spending eg, on health and education.
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