IMF, Pakistan finally see eye to eye

Fiscal deficit target set at 4.7 per cent of GDP, RGST bill to be presented during parliament’s current session.

ISLAMABAD: The delegations of the International Monetary Fund (IMF) and Pakistan have come to a consensus about limiting the fiscal deficit to 4.7 per cent of Gross Domestic Product (GDP) and presenting the reformed general sales tax (RGST) bill during the parliament’s current session.

The on going dispute between Sindh and the federation over implementation of the RGST will be resolved by the Council of Common Interests.

These agreements formed the outcome of a three-hour long meeting between the two delegations. It is expected that the agreement will be finalised on Friday during negotiations between the IMF and the country’s economic team led by Minister for Finance Dr Abdul Hafeez Shaikh.

Furthermore, Planning Commission Deputy Chairman Dr Nadeemul Haq will brief the IMF about the country’s plan to resolve the current power crisis. The plan includes the elimination of circular debt and subsidies on electricity, the dissolution of Pakistan Electric Power Company (Pepco) and the independence of power distribution companies whose shares will be floated on the stock exchanges.

According to sources, the IMF delegation rejected the proposed fiscal deficit to GDP ratio of 5.2 per cent but an agreement was reached between the two parties at a level of 4.7 per cent. Targets for GDP growth and inflation were set at 2.8-3 per cent and 13.5-14.5 per cent respectively.

The two sides agreed that funds from international sources, worth between seven and eight per cent of the GDP, will be mobilised to address the fiscal deficit. These sources include foreign aid, loans and inflows.

It is also expected that tax collection for the current fiscal year will be around Rs1,684 billion, of which Rs1,604 billion was the original tax collection target. The difference of Rs70-80 billion will be collected to aid the people and areas affected by floods and will be implemented through various tax reforms which may include a flood tax or surcharge.

Sources indicated that Shaikh was busy with his address to the National Defence University and also chaired a meeting of the Economic Coordination Committee and thus it is expected that the agreement will be finalised on Friday.

According to sources, negotiations came back on track following meetings of the core economic team with the president and prime minister. It is believed that important policy decisions were finalised during these meetings.

Govt borrowing from SBP must stop

The IMF stressed the importance of fiscal discipline and the two delegations agreed at limiting borrowing from the State Bank of Pakistan (SBP) and financing the government through other means. Those means included the issue of Sukuk bonds worth Rs80 billion in two equal tranches.

The meeting also discussed the possibility of generating funds through the National Savings Scheme, treasury bills and Pakistan Investment Bonds. The IMF stressed that the country must meet the requirement of keeping government borrowing from the SBP within the limit and returning all loans to the SBP within 90 days.

Published in The Express Tribune, November 5^th, 2010.