January 16, 2003	Thursday	Ziqa'ad 12, 1423

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ISLAMABAD, Jan 15: The International Monetary Fund will hold talks with Pakistan this week on the government’s decision to cut electricity prices without consulting the industry regulator.

A delegation led by George Abed, director of the IMF’s Middle East department, will arrive on Friday for a five-day visit and meet Prime Minister Mir Zafarullah Khan Jamali, the IMF’s senior representative for Pakistan, Henri Ghesquiere, told reporters.

Jamali, needing to bolster his support base having only narrowly succeeded in forming a government after October elections, cut electricity prices by about five per cent last month.

Economic analysts say electricity price reduction should have been made by the power sector regulator, Nepra, not by the prime minister because investors want a strong regulatory environment, not one subject to political expediency.

Ghesquiere said Pakistan should have a “rules-based” system of deciding utility prices.

“Then if you work on a rules-based system, that means the electricity prices will follow a certain pattern and everybody knows what is happening...,” he said.

“I think that it will be important for Pakistan not just to signal to the IMF, but to signal to everybody that there is a coherent electricity pricing strategy.”

Jamali said the price cut was a way to provide relief to the poor and has promised more price cuts, particularly in food items, in near future.

While the IMF is clearly not pleased by the electricity price cut, economists say that as long as Pakistan is able to achieve broad macro-economic targets agreed with the IMF and remain on track with its promised reforms, it should continue to receive the support of the international financial institutions.

Jamali has promised to continue with reforms initiated by President Pervez Musharraf after his military coup in 1999.

He has also retained Musharraf’s Finance Minister Shaukat Aziz as his adviser with powers equivalent to a federal minister.

Pakistan received $115 million from the IMF in November as the fourth tranche of a $1.31 billion loan.

The IMF approved the three-year loan in December 2001 to help battle poverty and offset the impact on its economy of the war in neighbouring Afghanistan.

Ghesquiere said the timing of the disbursement of the fifth tranche would depend on the assessment of Abed’s mission.

“The IMF and the authorities will take stock of where we stand on the basis of our dialogue, on the basis of what really is going on,” he said.

Ghesquiere said the mission would review the performance of the economy until the end of December. “It appears that all these indicators have been good,” he said.—Reuters