News
Saturday, September 18, 2010
Govt assures IMF of imposing flood tax* GDP growth to fall below target of 4.5%
* Federal budget to be revised and submitted for approval to cabinet
By Sajid Chaudhry
ISLAMABAD: The country’s economic managers have committed with the International Monetary Fund (IMF) that the government will introduce a temporary 10 percent income tax surcharge to generate domestic resources to meet flood expenditures.
IMF authorities have been informed that the floods will have economic and budgetary impact and the Gross Domestic Product (GDP) growth targeted 4.5 percent will be missed and GDP growth is expected to be 2.5 percent to three percent this year.
GDP growth will be around 1.75 percentage points lower than would have been possible without the floods, a Letter of Intent submitted by Finance Minister Abdul Hafeez Shaikh and State Bank of Pakistan (SBP) Governor Shahid Hafeez Kardar informed the IMF.
The macroeconomic framework will be re-evaluated once the damage-needs assessment has been completed and a revised budget will be submitted for approval to the cabinet and presented to the standing committees on finance and revenue of the National Assembly and the Senate.
Donors have responded with emergency assistance, aid pledges, and reallocation of
resources. The UN has led the effort for early recovery and assistance operations for which it needs $460 million, of which so far it has secured $275 million from public and private international donors. Also, the World Bank and the ADB have committed to reallocate $1 billion and $2 billion respectively, to help finance reconstruction.
“The cost of emergency operations and reconstruction that lies ahead will compel us to adapt our fiscal framework to boost budgetary resources and enable the government to address the emergency, improve service delivery to the population, and increase public
investment to raise growth,” the letter said, adding that the government will, therefore, shift resources from non-priority current and development spending to relief and reconstruction spending. “The government will also introduce a temporary 10 percent income tax surcharge. Despite these efforts, there is no doubt that the massive spending needs and the revenue shortfall that are being caused by the floods will push the deficit above four percent of GDP. Given the limitations on domestic resources, additional external financing is urgently needed, preferably in the form of budgetary grants,” it said.
Courtesy www.dailytimes.com.pk