Talks end on positive note

Pakistan reaches agreement with IMF for release of sixth tranche of emergency $11 billion loan.

ISLAMABAD: Pakistan’s talks with International Monetary Fund (IMF) for the release of the sixth tranche of an emergency $11 billion loan have made a breakthrough at the policy level, with agreement reached on a set of conditions to be met by Islamabad before November 14, a day after the IMF mission is scheduled to come back again for a review.

Under the terms agreed, the government will introduce bills in parliament and provincial assemblies for the enforcement of reformed general sales tax by November 14. The government will also have to slap a 10 per cent income tax surcharge.

Likewise, it will need to increase electricity tariff in accordance with the previously-agreed schedule in order to phase out power subsidies. The government will also be obligated to end sales tax exemptions on zero-rated sectors, including textiles, leather and garments. The exemption will only be allowed on goods meant for export.

Upon completion of the two-day talks, the IMF mission is leaving Pakistan on Saturday (today) and will return on November 13 in time for the Pakistan Development Forum meeting. It will review implementation status of the conditions set, and send its final report to the IMF board.

During the negotiations, Pakistani team was led by Finance Minister Dr Abdul Hafeez Shaikh and the IMF mission by Adnan Mazarei.

The two sides have also forged consensus on certain fiscal targets, a member of Pakistan’s economic team who participated in the talks told this correspondent. According to him, budget deficit target has been revised from a previous 5.2 per cent of GDP to 4.7 per cent of GDP. Likewise, inflation target is fixed at 13.5 per cent. With the introduction of 10 per cent income tax surcharge, the tax collection target has been nudged up to Rs1.69 trillion. The two sides also agreed to peg the GDP growth target for the current fiscal year (2010-11) at between 2.8 and three per cent.

The income tax surcharge is meant to generate additional revenue for providing relief to the flood-ravaged people and their rehabilitation. It will apply on salaries, dividends, exports, imports, cash withdrawals from banks and electricity bills.

It has also been agreed that tax exemptions on fertilisers, textiles, leather, garments, pesticides, machinery and tractors will go. Steps will also need to be taken to come to grips with the circular debt issue.

Increase in power tariff, dissolution of Pepco, autonomy for power distribution companies, offloading of power distribution companies’ shares in bourses have also been agreed upon, the sources said. The IMF mission will review an action plan in this regard during its November 13 visit.

A finance ministry statement issued on Friday said that the government of Pakistan proposed to meet Mr Mazarei and his team on November 13 and to continue “constructive” discussions following the Pakistan Development Forum (PDF).

Published in The Express Tribune, November 6^th, 2010.