ISLAMABAD, Nov 26: The continuation of reforms by the new government is essential for Pakistan’s growth and poverty reduction objectives, believes the IMF.

According to official sources, the IMF has linked its assistance with the continuation of broad economic and financial agenda introduced by President Musharraf’s government three years ago.

The Fund officials were expecting from Prime Minister Mir Zafarullah Khan Jamali’s government to further stabilize the process of reforms by deepening essential reforms specially in the field of banking sector, privatization, state enterprises and fiscal consolidation.

Sources said that the Fund officials presumed that conditionalities attached with three years $1.3 billion Poverty Reduction Growth Facility (PRGF), including gradual increase in the prices of various utilities, will be implemented by the new political government.

President Musharraf and advisor on Finance Shaukat Aziz had been assuring the International Financial Institutions (IFIs) that all agreements and contracts made with various countries and foreign companies and institutions will be honoured.

The IMF also hoped that the new government in Pakistan will increase private sector credit and at the same time ensure that public enterprise credit remained under control.

The budget needed to include a set of safety net measures to help shield the real incomes of poor and low income households from the impact of the planned electricity and gas tariff increases and the elimination of General Sales Tax exemptions.

The Fund officials are of the view that the monetary authorities will have to keep developments under close watch, given the uncertainty as to whether the recent decline in velocity is a temporary or sustained phenomenon, while sustaining a strong pace of interbank purchasing of foreign exchange to meet the foreign exchange reserves objectives.

According to the IMF the recent appreciation of Pakistan rupee may not represent a move toward a sustainable equilibrium, and while respecting the market determination of exchange rate the authorities may want to use the timing and amount of purchases to remind market participants that the authorities are not underwriting any particular level or range of the exchange rate.

Sources said that the IMF also hoped that the new political government will effectively levy tax on agricultural income. The performance of the President Musharraf government over the issue has been termed as “disappointing”.

The Fund officials also expected from the new government to further strengthen the sales tax and custom duty refund system in consultation with the World Bank in order to reduce room for discretion and fraud.

In this behalf, it was said that meeting the revenue collection target of 2002-03 will depend heavily on the expected recovery of growth and imports. And in case there was no expected recovery in growth and imports, the authorities will have to take timely contingency measures on the revenue side, notably accelerating the harmonization of petroleum taxation. “It requires a strong political willingness by the new government to enforce tax collection”, a source in the local multilateral agency said.

However, the officials of the ministry of finance when contacted said that revenue collection position during the first four months (July-Oct) of the current financial year was satisfactory and that apparently there should not be any problem to achieve Rs450 billion target by June 30 next year.

The government in Pakistan is also being expected to undertake meaningful reforms in Water and Power Development Authority and Karachi Electricity Supply Company to remove their billions of rupees losses. In this behalf Pakistan has been urged to move ahead with the planned privatization of KESC, and put the complementary reforms in place to provide investors with sufficient regulatory certainty.

Similarly, the new government, sources said, was being expected to address the country’s huge social gap as much greater priority needed to be given to human development.