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No money if new tax not implemented, IMF tells Pakistan

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ISLAMABAD: The International Monetary Fund has said that there will be no release of next tranche under ongoing $11.3 billion Standby Arrangement (SBA) program unless and until Pakistan government introduces the Reformed General Sales tax (RGST) bill in National Assembly and enforces it, officials of the Finance Ministry said here Tuesday.

An official said the Fund wants that reform measures scheduled to be implemented earlier this year, are also added to the enforcement of RGST. This includes fiscal and financial sector reforms (a revised budget, enactment of amendments to the State Bank of Pakistan and Banking Companies Ordinance amendments).

“However, the government is trying its best to convince the political parties to help get the RGST bill passed by the National Assembly to become eligible to get the next tranche,” the official said. For this the government is seriously thinking to impose income tax on agriculture income to accommodate the demand of [Altaf Hussain’s] MQM and has already included the recommendations that [Nawaz Sharif’s] PML-N submitted in Senate Committee on Finance.

“If the two main parties are satisfied, then it would be easy for the government to get the bill passed smoothly,” the official said, adding that if the government is able to harness the favor of political parties, then it will table the bill in lower house of the parliament seeking approval. To a question the official s id that Pakistan is already engaged with IMF with regard to seeking extension in $11.3 billion Standby Agreement loan p 0-gramme that is going to end by December 31, 2010.

While Pakistan has formally approached the International Monetary Fund for obtaining a three-to-six month extension in its $11.3 billion Standby Arrangement (SBA) program that was set to expire on December 31, 2010. A senior official of the Ministry of Finance confirmed on Tuesday that Pakistan had forwarded a formal application seeking an extension in the SBA programme but did not confirm the period of the sought extension. The same was also confirmed by the IMF.

“Yes, we are discussing an extension in the SBA programme in the range of 3-6 month period and the IMF’s Board will take a decision in this regard in the next 10 days,” a senior official of the IMF based in Washington DC disclosed on condition of anonymity when contacted.

According to him, the decision would be taken by the Fund’s executive board before the expiry of the SBA programme on December 31, 2010. When asked whether the exact date of the Fund’s executive board was finalised for considering Pakistan’s request, he said that the exact date of the Fund’s executive board meeting was not yet finalised.

To another query regarding the possibility of extension for three months or six months, he said that the Fund’s executive board would consider both options and would take a decision by considering all pros and cons.

However, the Ministry of Finance high-ups say that the credibility of finance wizards was badly shattered and now the IMF’s top notches were not ready to take their words seriously. At the moment, the IMF would like to get assurances from the top political leadership before forwarding Islamabad’s formal request before the board.

Consequently, the IMF has decided to dispatch its top officials to Pakistan in the next couple of days for getting assurances from the top political leadership, including President Asif Ali Zardari or Prime Minister Gilani, on imposition of the Reformed General Sales Tax (RGST) to pave the way for getting an extension in the ongoing $11.3 billion bailout package.

The backdoor channel is being used to secure the IMF’s support in the aftermath of Islamabad’s failure to impose the RGST within the desired timeframe. Discussions were already underway between the IMF and the Pakistani side to materialise this plan but for the extension to come through, it would require the full backing of the US and other western capitals or the IMF staff will face a stiff resistance from its board members for granting the extension. The situation has hardly been helped by the absence of other reforms, including the power sector.

The IMF programme, sources said, was quite crucial for Pakistan’s struggling economy because its expiry on an unsuccessful note means that the confidence of the international community and investors could be shattered and flight of capital could hit Pakistan despite the fact that currently the country’s foreign currency reserves are in a relatively comfortable position.

Input from Agencies

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