"A flurry of activities by Pakistani authorities persuaded Mr Mazarie and IMF’s Country Representative Paul Ross to return to the dialogue." — File Photo

ISLAMABAD: A last-minute assurance by the government to introduce new taxation measures and withdraw power sector subsidies from April 1 led to a three-day extension in weeklong topsy-turvy talks with a mission of the International Monetary Fund (IMF).

A Pakistani negotiator said the authorities would continue to keep the IMF engaged in policy discussions in view of diverse political and economic compulsions, although the $11.3 billion standby arrangement “remained technically suspended”. He said Pakistan had managed its economy rather well without IMF’s inflows for eight months now, despite serious challenges.

After a meeting with Finance Minister Dr Abdul Hafeez Shaikh, the IMF mission’s head, Adnan Mazarie, had told journalists that talks had been completed and a press release would be issued by the fund’s headquarters in the US in a couple of hours.

A flurry of activities by Pakistani authorities, however, persuaded Mr Mazarie and IMF’s Country Representative Paul Ross to return to the dialogue.

Sources said backchannel contacts in Washington by Dr Shaikh and the Planning Commission’s Deputy Chairman Dr Nadeemul Haq helped pull back Mr Mazarie and Mr Ross to put the talks back on track.

After a brief session, Dr Shaikh and Mr Mazarie told reporters that “talks are going fine and would go on for another 2-3 days”.

An official said Pakistan had assured the IMF team of its commitment to introduce taxation measures like flood surcharge, increase import duties, withdraw sales tax exemptions to some major sectors and start withdrawing power sector subsidies with effect from April 1.

How the tax measures would be introduced (either through a presidential ordinance or statutory regulatory orders), how much revenue these steps would generate and how much power tariff subsidy would be withdrawn would be worked out over the next two days by the two sides for implementation before the IMF mission returned to Washington, the official said.

He said the situation would also be discussed with the political leadership for policy decisions by Wednesday.

Dr Shaikh said the two sides ‘had very fruitful dialogue’ on economic challenges and required reform measures and discussed in detail the microeconomic framework and the nature of Pakistan-IMF collaboration. He said that serious discussions required further input and feedback.

Mr Mazarie said Pakistan faced important challenges and the two sides discussed ways of dealing with the challenges, some of which were creating socio-economic problems because of extraneous factors.

He said it was important for the authorities to initiate measures to put Pakistan on a safer path and the economic team had shown commitment to take steps in this regard.

Asked about measures the government planned to introduce, Dr Shaikh said the reforms agenda was well known as announced in the budget and other official papers. The fiscal framework has been put on a solid footing through control on expenditures to ensure that growth picks up and there is an environment for the private sector to expand.

When asked if a revised fiscal deficit target had been agreed, Dr Shaikh said the deficit had to be kept above five per cent of the GDP, which was very challenging but necessary to keep the country in a safe range that did not fuel inflation or hamper growth.

He said at one point it was feared that the deficit could touch eight per cent by the end of the current year, but the government had demonstrated commitment to controlling the situation in spite of floods and external shocks like oil price hike.

An official said Pakistan could not afford to say goodbye to the IMF despite suspension of its programme because it would affect the relationship with other lending agencies.

Therefore, a continuous engagement with the fund would remain a key objective till some agencies started lending independently to Pakistan.

He said the IMF expected Pakistan to get out of the one-off taxation measures to address crisis-like situations and thought it was in the country’s interest to introduce the RGST which had a long-term, automatic revenue increasing mechanism.

Replying to a question, the official said a well-prepared integration plan would be required to move from the suspended programme to a new programme over the next couple of years.