Power tariff to be raised by 1.6pc, sales tax to be replaced by VAT on IMF demands

[Naveed Yaseen]

ISLAMABAD: Pakistan has informed the International Monetary Fund that it will raise electricity tariff by 1.6 per cent.

An official attending the Pak-IMF review meeting being held in Dubai told Dawn on Wednesday that the IMF team had expressed displeasure over the government’s failure to implement power sector reforms and increase electricity tariff in accordance with an agreed schedule.

A joint statement is expected when the meeting concludes on Thursday.

Finance Minister Shaukat Tarin is leading the Pakistani delegation at the meeting.

The official said an IMF advance team had expressed concerns that non-productive expenditures of the energy sector remained high, the issue of circular debt had not been resolved and the government did not raise the tariff by 6 per cent under an agreed schedule. It pointed out that the 6 per cent tariff increase in October actually meant 4.4 per cent because of subsidies and other factors.

‘We have decided to increase electricity rates by 1.6 per cent immediately,’ the official said.

Pakistan is seeking a $1.2 billion tranche, including a $360 million additional facility as a standby arrangement, apart from the $840 million quarterly tranche.

About the heavy administrative expenditures, the IMF was assured that the federal cabinet would take up the issue of austerity measures at a meeting next week.

The austerity measures, the official said, would save up to Rs50 billion a year.

The measures had been designed to improve productivity of government employees with the reduced use of resources, the official said.

He said the finance minister had informed the IMF that salaries of military personnel would be increased by 100 per cent from January next year and the finance ministry had recommended to the pay and pension commission to increase salaries of federal government employees.

The IMF delegation expressed displeasure over delay in imposition of value added tax.

An agreement with the Fund requires VAT to replace sales tax from July 2010 and the government has set the deadline of December 2009 for formulation of VAT regulations.



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