ISLAMABAD, March 3: The government has refused to accept a demand of the World Bank and the International Monetary Fund to introduce new taxes and substantially increase development expenditure in the next budget.
Sources told Dawn on Tuesday that Pakistan's refusal had been communicated to the donor agencies, which believed that the country's development strategy needed to be improved by imposing additional taxes in the 2004-05 budget.
Both the donors, specially the World Bank, were of the view that the budget deficit was "very tight" and should be enhanced to more than four per cent of the gross domestic product to make sizable funds available for development.
Sources said the World Bank might revise its plan of enhancing the country's annual assistance from $700 million to $1 billion if Islamabad did not oblige it over the issue.
An official said the World Bank and the IMF pressured the country to reduce its fiscal deficit in the 1990's for lowering the debt burden but were now asking for significantly increasing the development budget, which would increase the debt burden.
He said the IMF was towing the World Bank's line over the issue but its officials knew that they could not force the government as the fund's $1.4 billion Poverty Reduction and Growth Facility programme would end by October.
"The World Bank continues to talk about it and perhaps it again take up the issue during the three-day meeting of the Pakistan Development Forum starting here on Feb 17," sources said.
They said the World Bank did not incorporate the government's objections in its strategy regarding the imposition of taxes and increasing the development budget.
"It is a conspiracy to ask Pakistan to go back to the regime of unsustainable debt," the official said. He said the country had reduced its fiscal deficit to four per cent, which would be lowered to 3.5 per cent in four years.
He said the government would spend Rs1,100 billion by 2007-08, Rs160 billion for 2003-04, Rs200 billion during 2004-05, Rs240.3 billion in 2005-06, Rs295.3 billion in 2006-07 and Rs367.5 billion in 2007-08 under the public sector development programmes.
"This is an unprecedented development funding and we don't know how much more the donor agencies want us to spend," the sources said. They did not believe that the country had the capacity to manage the huge development funds being sought by the World Bank and the IMF.
They said the development spending was consistent with the country's macroeconomic framework finalized in the Poverty Reduction Strategy Paper. "There is a rising trend in the donor agencies to seek additional taxes and if we accept their demands, it would adversely affect our economy," they said.
They said the government was increasing tax collection by 12.5 per cent annually, which were sufficient and unnecessary burdening of the people with new taxes would make it government unpopular. "We are following our debt reduction strategy without recourse to drastic reduction in fiscal deficit," they said.
