Deal with IMF almost done

[Naveed Yaseen]

By Mehtab Haider
ISLAMABAD: The International Monetary Fund (IMF) has endorsed the economic stabilisation programme of Pakistan during the ongoing talks in Dubai and now the exact size of financing is under discussion, a senior official of the Pakistani delegation confirmed to The News on Tuesday.

The official, who is part of the Pakistani delegation, said the ongoing talks would be completed by Oct 30. “Things are moving ahead in the right direction,” said the Pakistani official, who wished not to be named and added they were expecting to see a positive and clear development by Wednesday evening.

The economic stabilisation programme, sources said, will mainly focus on curtailing the fiscal deficit by doing away with subsidies, cutting down the development budget as well as current expenditures in the next 21 months.

“The size of the government has increased manifold and merger of various ministries/divisions are on the card under the agreed stabilisation package between the IMF and Pakistan,” sources said.

On the monetary side, the IMF and Pakistan have agreed to continue ‘flexible exchange rate’ policy, which means that the State Bank would not intervene in the market to stabilise the rupee.

The rupee is likely to remain in the range of 80-81 against the dollar by adopting flexible exchange rate policy, they added.There is further possibility of tightening the monetary policy, at least, for the next few months despite lowering down of the food prices in the international market in order to curtail inflation on medium-term basis.

The Federal Board of Revenue (FBR) high-ups are also part of the delegation and the fund is pressing Islamabad to broaden the tax base by imposing GST on services sector, income tax on agriculture and Capital Gains Tax on the stock market. “The development expenditures needs to be slashed down by Rs 60-100 billion for 2008-09,” said the sources and added most of the unviable development projects would be closed for the next two years in which there would be a consolidation phase.

Sources said the IMF would not directly ask Pakistan for reducing the defence expenditures but they would ask for curtailing fiscal deficit by either increasing revenues or decreasing expenditures, including the defence spending.

“It will be our choice to set our priorities by keeping fiscal deficit within the desired and agreed limit,” said the official and added there was no possibility for higher GDP growth for the next two years. It would remain hovering around 3 to 4 per cent for the next two years.

A SBP spokesman confirmed that SBP Governor Dr Shamshad Akhtar had gone to Dubai for attending an Islamic finance conference. However, sources said she would also meet the IMF delegation for finalising the exact size of the financing for the ailing economy.

Another official, who is also in Dubai for talks, told this scribe that when both sides finally agreed to salient features, including the exact size of financing, then Pakistan would write a formal letter to the IMF managing-director for making the request and this process was likely to be finalised by Nov 15, 2008.

http://www.thenews.com.pk/top_story_detail.asp?Id=18057