IMF delegation extends its stay

ISLAMABAD: The IMF delegation, which is in the city, has decided to extend its stay till Tuesday to sort out differences with the government on circular debt, increase in power tariff and implementation of value added tax.

IMF Director for the Middle East and Central Asia, Adnan Mazari, is talking with the Pakistani government to settle the issues before approval of a fifth tranche of $1.2b under the IMF’s $11.3b bailout package.

He held a second round of talks with Finance Adviser Dr Abdul Hafeez Sheikh and also met State Bank Governor Syed Salim Raza. It seems emergence of a trust deficit, for the first time since October 2008, has hampered the settlement of thorny issues between the Government of Pakistan and the International Monetary Fund.

A finance ministry official said Mazari told Pakistani authorities that the IMF’s executive board meeting had been called on May 3 to approve the $1.2b loan tranche. In another development, the government has left the decision of a 6 per cent increase in power tariff to a three-member Special Cabinet Committee, headed by Water and Power Minister Raja Pervez Ashraf.

The committee would meet on Sunday or Monday and take a decision, which the finance ministry would convey to the IMF delegation on Tuesday, said a key official of the finance ministry. He said Mazari expressed fears over achieving the target of privatisation proceeds.

The finance ministry told the delegation that Etisalat, which held a 26 per cent stake in the Pakistan Telecommunication Company, would transfer $800m before June, he added. The government could not give an exact position of the circular debt to the visiting delegation, said the official.

“The World Bank, the Asian Development Bank and the Government of Pakistan will hold an important meeting on Monday to deliberate on the matter.”

Finance ministry sources said that the government also could not satisfy the IMF delegation on how it would absorb an additional Rs40b, which it had spent on providing power subsidy, above the agreed amount of Rs55b, in the current fiscal year.

The IMF was not happy with Pakistan’s finance managers as they could not deliver, sources said. “Pakistan missed the budget deficit target for the third quarter by 0.2 per cent, borrowed about Rs95b from the State Bank above the quarterly ceiling and could not timely introduce the value added tax bill in provincial assemblies,” a source said.

The FBR could not timely finish homework on the actual impact of VAT as the process of hiring consultants was delayed, said the sources. All this led to a trust deficit between Pakistan and the IMF, they said.