March 4, 2003	Tuesday	Zul Hijjah 30, 1423

WASHINGTON, March 3: The International Monetary Fund has observed that the financial situation of the Water and Power Development Authority fell far short of its objectives.

The IMF report, released on Friday, blames “insufficient adjustment of tariffs to surging costs, difficulties in collecting bills in certain regions of Pakistan, and too little progress in reducing line losses,” for the failure.

The report also describes as ‘disappointing’ a few tax exemptions introduced by the government in recent months.

Noting that “the performance of the large public enterprises through September was generally in line with their respective financial improvement plan targets,” the IMF also observed that “progress on the structural front was uneven.”

“Looking ahead, the authorities need to reinforce efforts to implement their poverty reduction strategy by consolidating macroeconomic stability and strengthening governance,” it suggests.

On the fiscal side, the report says, achieving the programmed budget deficit targets will require a reduction of non-priority expenditures and the implementation of measures aimed at containing Wapda’s losses and offsetting the lower-than-expected profit transfer from the State Bank of Pakistan resulting from high sterilization costs.

The IMF suggests that a slowdown in the pace of the SBP’s foreign exchange purchases should contribute to containing money growth and reducing the need for costly sterilization.

Urging Pakistan to implement “a broad range of structural reforms,” the IMF says that such reforms will be essential to creating a more investor-friendly environment and reducing poverty.

The completion of the unbundling of Wapda into smaller and privatizable corporate entities, along with other measures aimed at improving its operational performance, should contribute to reducing its need for government subsidies, the report says.

This measure, the IMF says, will also free resources for priority social and capital expenditures. The removal of a significant number of tax exemptions with the next budget, the report says, should lead towards a tax system where the burden is more fairly distributed across income earners.

“Adoption of a draft fiscal responsibility law should enhance transparency in public finances. Finally, the planned privatization of Habib Bank and reform of the National Savings Schemes will allow the financial sector to better support investment and growth in Pakistan,” says Eduardo Aninat, Deputy Managing Director and Acting Chairman.