WASHINGTON, Nov 16: The International Monetary Fund has asked the government of Pakistan to introduce agriculture tax if it is serious about increasing the country’s revenue, diplomatic sources told Dawn.
The fund’s executive board will meet in Washington on Friday to review an economic programme for Pakistan, which includes a $7.6 billion loan to meet the country’s serious balance of payments difficulties.
Pakistan is expected to start receiving the money from the end of this month. The IMF will deliver $4 billion in 45 days while the rest will be disbursed in 2009.
The fund required Islamabad to undertake a set of prior actions, including a 2 per cent increase in interest rates which was announced last week. This is the highest increase in more than a decade.
But diplomatic sources in Washington told Dawn that the IMF expected Pakistan to do more. One of the key elements of these measures is a proposed tax on agricultural products, which the IMF says has become unavoidable.
During a visit to Washington last month, Prime Minister’s Economic Adviser Shaukat Tarin promised to bring all sectors, including agriculture, under the tax net to strengthen the national economy.
A financial analyst noted that Pakistan had promised levying agriculture tax in the past as well but somehow wriggled out of its promises. “But the fund has now warned Pakistan that there’s no escape from it,” said the analyst. ‘If Pakistanis once again fail to impose agriculture tax, this will be the last IMF programme they will have.”
The fund expects Pakistan to introduce other taxes as well and hopes that Islamabad will soon make new laws to achieve this target. The IMF also expects the government to levy new taxes on real estate appreciation, stock market profits and capital gains.
If the proposals are implemented, the new taxes will become effective next year.
The fund has also suggested a drastic reduction in the government spending and has proposed a performance criterion to increase revenue collection to a certain point.
Pakistan and the IMF are expected to determine the precise amount of the proposed increase later this week.
Opposition parties in Pakistan have already started criticising the government for seeking the fund’s assistance. Even though details of the IMF’s conditions have not yet been published, the critics say the fund always imposes harsh restrictions that impede economic growth.
But IMF officials describe such suspicions as unfounded, saying that the Pakistan aid package will not impede development and will not hurt the poor.
An IMF statement issued in Washington on Saturday said the Pakistan programme had two main objectives: restoring the confidence of domestic and external investors by addressing macroeconomic imbalances through a tightening of fiscal and monetary policies; and protecting the poor and preserving social stability through a well-targeted and adequately funded social safety net.
Some analysts in Washington, however, feel that if public pressure increased, Pakistan may wriggle out of the IMF programme after receiving the first few instalments it needs to meet its balance of payment requirements.
“If this happens, it will badly hurt the country’s image and the fund will not trust Pakistan again,” said an analyst.
The analysts noted that while allies like the United States and Saudi Arabia played a positive role in getting the IMF package for Pakistan, they were still unwilling to provide bilateral assistance to the country. This, the analysts argue, limits Pakistan’s options and may force it to stay with the IMF.
The analysts warned not to expect much from the Friends of Pakistan group which meets in the UAE on Monday.
“The Friends of Pakistan club does not seem to have much cash available,” said a diplomatic source aware of the negotiations between Pakistan and other members of the group. “They may fail to offer any substantial help to Islamabad.”