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A privilege motion has been moved in the National Assembly against the finance minister for saying that lawmakers are preventing the government from implementing tax reforms.—AFP photo

WASHINGTON: The Pakistani delegation to the International Monetary Fund-World Bank spring meetings is returning home without any understanding on the release of the final instalment of an $11.3 billion loan package. Pakistan has already received more than $7 billion in five instalments. The 6th tranche, however, remains suspended since May 2010 because of the country’s inability to meet performance benchmarks attached to the standby arrangement.

“There are no indications that the delegation was able to convince the IMF to release the next tranche,” a diplomatic source told Dawn.

“And until the 6th tranche is released, it is highly unlikely that the IMF will hold any negotiations on a future arrangement.”

Islamabad had earlier indicated that it might seek another loan arrangement of about $3.2 billion to meet its financial obligations and to repay earlier debts.

Pakistan has borrowed more than half of its $50 billion external loans from the IMF, the World Bank and the Asian Development Bank.

“But the country’s economic performance is so poor that it is difficult to imagine how they could have convinced the IMF to release the next tranche,” the source said. “This was not a good trip for the Pakistani delegation.”

Pakistan still has about two months to implement at least some of the reforms the IMF recommended to qualify for the 6th instalment and to seek a new package.

Pakistan is expected to send another delegation to Washington next month or in early June for more talks on continued international assistance to rescue its ailing economy.

The IMF’s concerns revolve around a rising inflation, a widening fiscal deficit, exemptions incorporated in the reformed general sales tax and energy subsidies.

During talks in Washington, experts referred to a notification the government of Pakistan issued on April 1, giving exemptions to textiles and leather and sporting goods from the RGST.

The IMF argued that since these were the biggest income generating sectors, giving exemptions to them will further weaken the government’s ability to raise money, particularly when it was reluctant to impose agriculture tax.

Referring to a privilege motion moved in the National Assembly on Monday against the finance minister for saying that Pakistani lawmakers were preventing the government from implementing tax reforms, a diplomatic source said: “These are internal political pressures but they cannot convince donors to give more money unless the Pakistanis take immediate measure to reform their economy.”

The IMF is believed to have warned the Pakistani delegation that if they did not take immediate remedial measures, their deficit may go up to 6 per cent by the end of the current fiscal year.

Experts noted that India also had a high deficit but their growth rate was also between 9-10 per cent compared to Pakistan’s 2 per cent.

Pakistan’s inflation rate, already between 13 to 14 per cent may also go further up. And in the current situation, taking more loans will bring more pressures on the economy, IMF experts warned.

While pointing out that the government cannot afford to continue to subsidise the energy sector, the experts referred to various figures released in Islamabad. According to these statistics, the government was spending Rs46 billion a year on servicing the old circular debt in the energy sector.

This year the government will face another deficit of Rs256 billion because of increase in oil prices. The electricity loss costs the government Rs256 billion a year, which is more than its total expenditure of Rs165 billion.

Experts noted that with population growth rate not slowing down, youth unemployment at almost 50 per cent, less than 5 per cent investment in public sector development and with a 10 per cent tax to GDP ratio, Pakistan could not hope to revive its economy without drastic reforms.


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