ISLAMABAD: The International Monetary Fund (IMF) has postponed its scheduled March 31st executive board meeting, which had to review Pakistan’s economy and approve the much-awaited fifth tranche worth $1.2 billion under an $11.3 billion standby agreement, officials said on Friday.
The IMF Executive Board delayed the review of Pakistan’s economy because of the government’s failure to meet an important condition of the tabling of the draft Value Added Tax (VAT) legislation in the four provincial assemblies, a senior official of the Finance Ministry told The News on condition of anonymity.
The proposed VAT is aimed at bringing the services sector into the tax net. The IMF website, where meeting schedules are posted, also has removed Pakistan from the board agenda.
Official sources say that no new date for the meeting has been given. According to one senior government official, the meeting could now take place in early April, but others say that the issue of tranche approval would not come on IMF agenda till the end of next month.
The delay in receiving the fifth tranche comes as a severe blow for the newly appointed Finance Adviser Abdul Hafeez Sheikh, who is trying to stabilise Pakistan’s battered economy and restore investor confidence.
Independent economic analysts and bankers say the delay in the IMF tranche would put pressure on the rupee and likely dampen sentiments at the country’s premier Karachi Stock Exchange.
“The rupee will come under pressure if the IMF money is delayed for more than a month,” said Sayem Ali, an economist at the Standard Chartered Bank. The IMF approval remained crucial because other donor agencies, including the Asian Development Bank and the World Bank, also take lead from this agency, he said.
He said during the last two reviews, the IMF had already overlooked Pakistan’s failure in meeting its budget deficit targets. “In this review, they are likely to come very hard on Pakistan.”Zafar Moti, a leading stock broker, said the delay in the IMF tranche would have an adverse impact on the market. “It means that the government’s bank borrowing might increase, leaving little liquidity for the private sector.”
Finance Ministry officials said that Finance Adviser Sheikh and Secretary Finance Salman Siddiq, who are in Washington DC to participate in the strategic dialogue with the US government, have been sent “SOS” messages from Islamabad to take up this issue at the highest level of the IMF management for revision of the agenda of the IMF’s Executive Board.
There are apprehensions among the government circles that if the fifth tranche is not approved on March 31, it would be linked by the IMF to the salient features of the coming budget 2010-11 (July-June).
“We are still making efforts to settle issues amicably and it is possible that the IMF management may revise the schedule for Fund’s meeting on March 31 by including Pakistan’s case for approval of $1.2 billion tranche under the SBA probably by Monday next,” said a senior Finance Ministry official.
He said that the Ministry of Finance had received letters from the NWFP and Balochistan provincial governments for tabling the draft legislation of VAT in the provincial assemblies, while the Sindh government also submitted it before its assembly on Friday.
“Now there is only one province - Punjab - where VAT law has not been tabled in the provincial assembly,” he said. Most likely it would be done by Saturday, he said. No official comment was available from the IMF representative in Pakistan.
Finance Ministry officials say that Pakistan agreed with the IMF during Dubai talks held in November 2009 for taking decision on VAT before the next review and impose the same from July 1, 2010.
Federal Board of Revenue officials estimated that the new tax would help the government to fetch an additional Rs150 billion. The government fixed a target of Rs1.38 trillion of revenue collection for the year ending June 30, 2010 and was likely to set a target of Rs1.7 trillion for the new fiscal starting July 1, official sources said.
The government is now likely to send a complete compliance report to the IMF next Monday ñ once the VAT draft law is submitted before all the four provincial assemblies.Government officials say that there is no other issue pending in terms of prior action as required by the IMF, including the circular debt.
Pakistan has so far received around $6.4 billion from the IMF from its total rescue package.The IMF money has helped boost the foreign reserves, which now hovers around $14 billion. The IMF has already agreed upon the government’s recommendation to scale up the fiscal deficit target to 5.1 per cent of the gross domestic product from the earlier envisaged target of 4.9 per cent.
Source: http://www.thenews.com.pk/daily_detail.asp?id=231185
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