News
Wednesday, June 15, 2011
US influence can put $11.3bn IMF loan programme back on track
By Sajid Chaudhry
ISLAMABAD: Pakistan’s economic managers strongly feel that the influence of the US will be decisive in putting the suspended $11.3 billion IMF Stand-By-Arrangement (SBA) loan programme back on track, official sources informed Daily Times on Tuesday.
They also believe that Pakistan People’s Party-led government in the center had done much on meeting performance benchmarks agreed with the International Monetary Fund (IMF), and Pak-IMF meeting in July would be crucial in determining future of the suspended $11.3 billion SBA.
The authorities are hopeful that they have done sufficient and there is a possibility of a breakthrough in the Pak-IMF talks, scheduled to be held in July 2011.
However, they have also chalked out contingency plans for retiring the IMF loan without obtaining fresh IMF loan.
Pakistan is to retire $500 million IMF budgetary support loan in January 2012, which was approved for Pakistan for meeting financial needs after delay in the release of Tokyo pledges.
Pakistan has taken painful decisions in the power sector. Especially, it reduced gap between the costs of purchase of power and sale of power to the consumers, which was around Rs 6.45 per unit and now had reduced to just Rs.1.5 per unit.
The remaining element of subsidy on power would be reduced to less than Rs 1 by the end of September.
This would be ensured through increasing the power tariff immediately after the approval of budget 2011-12 in the National Assembly and by the end of first quarter of 2011-12 September 2011. Reduction of the power sector subsidy to less than Rs1 would help meet one of the main performance benchmarks of the World Bank and Asian Development Bank, the main financers of the power sector reforms and mega projects in Pakistan. IMF on behalf of WB and ADB is monitoring the power sector reforms.
The federal government has taken unpopular decisions by in-directly taxing agriculture sector through the withdrawal of GST exemptions on fertilisers, pesticides, tractors on March 15 and withdrawal of GST exemption on 21 further items, including defence imports in the budget 2011-12.
However, the economic managers strongly feel that they are still lagging behind on GST side, as they have failed to tax services sector and retail sector, which are essential to complete the entire value added tax chain in the country.
The third and important performance benchmark was to reduce the State Bank of Pakistan’s borrowing to zero (0) by the end of fiscal year 2010-11. The federal government has not only retired the entire remaining Rs 120 billion of the current year’s borrowing portion but also retired Rs 15 billion SBP borrowing which was part of the total federal government borrowing of Rs.1165.
The federal government is required to retire SBP borrowing of Rs.1165 billion in next years and PPP government has managed to retire it’s Rs.15 billion portion well ahead of time.
The authorities here believe that IMF mission visiting Islamabad in July would be presenting it’s report to the IMF Executive Board for decisions on the restoration or maintaining status quo on the suspended $11.3 billion SBA.
The restoration of $11.3 billion SBA would automatically ensure letter of comfort by IMF authorities for approval of WB and ADB fresh loans.
Pakistan is to retire IMF loan from it’s foreign exchange reserves and after retiring the IMF loan Pakistan’s foreign exchange reserves will come down to $9.9 billion from the existing over $17 billion.
Courtesy www.dailytimes.com.pk