Pakistani officials believe the country has met all the
requirements for the IMF to release a vital, delayed final
tranche of its $11.3 billion emergency loan programme.
The tranche, of $1.2 billion, was due to be released in
March, but was withheld while talks continued on policy issues
including power tariffs and a new VAT law.
But Sibtain Fazal Halim, Secretary for the Economic Affairs
Division in Pakistans Ministry of Economic Affairs and
Statistics, told Emerging Markets yesterday: We
are confident we have met all conditionalities. We are hopeful
the next IMF tranche will be released soon.
His comments came in the wake of a statement last
month by the IMF that more needs to be done to stem
financial losses in the power sector which are a drain on
public finances and pose a threat to macro-economic
stability. The IMF also warned that the
introduction of a broad-based value-added tax in July 2010 is
essential for stabilizing Pakistans stricken
The lender is likely to discuss the issue in the middle of
this month before making a decision. It will focus on
Pakistans progress towards a VAT law, which should be in
force by July 1 to meet the formal terms of the loan.
Laws under consideration by the federal parliament and four
regional legislatures will replace the current sales tax on
goods and services with VAT. We hope to have them declare
in time, before July 1, Halim said.
Since the laws will still be under discussion when the IMF
meets, it will have to base its decision about releasing funds
on the level of commitment to change that it perceives.
Authorities have insisted that the laws will go through.
Abdul Hafeez Shaikh, principal adviser on finance to the prime
minister and de-facto finance minister, told Emerging Markets
in an interview last month: Our president and prime
minister have already committed themselves to VAT from the new
fiscal year [i.e. from July 1].
But western economists in Islamabad have told Emerging
Markets that the IMF is concerned that Pakistans tax
collection agency could not get ready to collect new taxes in
Another issue the IMF must consider is power tariff
increases. These have risen by 12% in the last year, and a
further 6% hike, backdated to take effect from April 1, is due
for approval. Such decisions are deeply unpopular with citizens
who face constant problems with power brownouts.
It shall be done: maybe before we leave Tashkent,
maybe this month, Halim said.
Getting the final tranche of the IMF programme is vital for
Pakistan. A failure to receive it would rock already
shellshocked investor confidence, while a successful
disbursement would help stabilize the economy and improve
The VAT itself would help the countrys funding base
enormously, Halim said. Our tax to GDP ratio is a little
under 10%. Our aim is to push it up to 15%.
Foreign direct investment fell 46% to $1.9 billion in the
nine months to March 31, but portfolio flows have started to
look slightly more positive: the National Bank of Pakistan said
last month that $200 million had flowed into local stocks from
overseas this year. Halim blamed the drop in FDI on the global
financial crisis and the security situation, but said interest
was increasing and foreign investment will definitely