Claims thorough official agency that two sides reached an understanding on all issues, but, IMF spokesman says that several issues are still to be discussed

From Shamim Ahmed Rizvi, Islamabad
August 9 - 15, 1999

Federal Finance Minister, Ishaq Dar's dash to Washington has been successful only in the sense that IMF has agreed to give a few weeks more to the Managers of Pakistan's economy to implement the commitments made earlier. Mr. Dar has succeeded in persuading the IMF to send its review mission again to Pakistan by the 3rd week of the current month assuring them that most of the conditionalities agreed between them would be met in the meanwhile. The IMF authorities have made it clear that the release of withheld tranche under ESAF/EFF arrangements is linked with the satisfactory report of the review mission.

With a view to avoiding embarrassing questions, Mr. Dar avoided meeting the press and only the official news agency (APP) was allowed the privilege of having an exclusive interview with the Finance Minister on his return from Washington. In the interview, however, he admitted that he was under great pressure from the IMF side to increase the prices of gas, petroleum and electricity besides levying 15% GST on services and utilities and immediate resolution of lingering dispute with Independent Power Producers (IPPs) in which huge foreign investments has been stuck up. Dar said imposition of 15% GST and 16% increase in the prices of both petroleum and electricity was an old demand of the IMF as reported earlier, with an escalation impact of 31% . In case of gas, he said IMF wanted 20% increase in prices over and above 15% GST adding, the matters relating to increase in the prices of petroleum, gas and electricity were pending since the decision thrashed by the Cabinet of Meraj Khalid regime.

These decisions were, in fact to be implemented after the summary moved by the cabinet of the Meraj Khalid government, the minister said continuing in case of gas prices, IMF had serious reservations and the Cabinet will now have to take some decision in this regard.

Another issue was the restructuring of the PPL companies which would have an escalation impact by 10 to 12%, thus final impact of such measures, if taken, could transcend to 40%. The Minister said that government would take decision on these matters on the basis of official understanding developed with the IMF.

The Minister, who was accompanied by Governor, State Bank of Pakistan Dr. Muhammad Yaqub and Finance Secretary Khalid Javed during the talks with the IMF, said this meeting was already scheduled and the Fund was intimated that Pak economic team would visit them after the trade policy for 1999-2000. The report to be prepared by the Fund team would be presented to the board meeting, scheduled to be held on September 26 to 27.

According to the revised programme, a report on Pakistan's post budget economic scenario in the context of the three-year ESAF/EFF structural reform programme would be ready for the perusal of the Fund's Executive Board when it would hold its meeting by the end of September. A positive consideration of this report by the Board would then, hopefully, ensure the release of the next tranche of $ 280 million of the Fund's assistance by early October. Originally, the IMF mission was to come to Pakistan immediately following the announcement of the annual budget and to submit its report to the Board for consideration at its meeting by July end. This would have led to the release of the next tranche of loan by early August. But because of the Kargil crisis, this visit was delayed. Also, there were fears that the review mission might not come until after September. That would have meant a delay of about six months in the release of the next tranche. This was perhaps why the Finance Minister, the SBP Governor and Finance Secretary decided to appear before the Fund officials in Washington and try to make them to agree to send the review team by mid-August.

When the two sides met in Washington, they used the opportunity to do a quick review of the progress of the reform programme. Dar has refused to discuss the details of this review but said that the two sides had reached an understanding on all issues. But an IMF spokesman said that several issues were still to be discussed. Reports also said that the two sides had differing views on as many as 22 items of the programme. Some of the issues on which differences surfaced got leaked to the press. One such issue refers to a difference of opinion on the amount of anticipated income from revenues during the year. Pakistan insists that it would succeed in collecting Rs. 356 billion in revenues, while the Fund feels that the amount would fall short by as much as Rs. 45 billion.

There are also problems such as delays in setting up the Pakistan Revenue Authority, resolving the IPPs issue, recovery of bank loans, increasing the number of income tax payers, improvement in the collection of agricultural income tax and imposition of GST on services and utilities that have yet to be mutually sorted out.

The major difference is in the two perceptions on the estimates of revenue collection. The IMF is not accepting that CBR would be able to meet the target of Rs. 356 billion as estimated in the budget 1999-2000. They are of the view that this target cannot be achieved without increasing the prices of gas, electricity and petroleum products — a simple and assured method to raise revenues — besides a levy of GST and a meaningful increase in tax on farm income.

In view of the prevailing political conditions when, in the aftermath of Kargil fiasco, all opposition parties are forming grand alliance against the government, the Prime Minister, is reluctant to increase the prices of utilities as it would provide with a new opportunity to the opposition to persuade public to come to streets. Apprehensions of the prime minister are justifiably notified because any increase in the prices of utilities would trigger another wave of price hike causing great annoyance and resentment amongst the already economically hard pressed general public. This is because of these reservations that government functionaries are aiming that 15% GST would be imposed on utilities to meet the conditions of IMF in a way that general consumers are not burdened.

The Finance Minister also hinted that levy of GST would not be a burden on the domestic consumers as the fuel and petroleum surcharges would be reduced to the some extent. It is yet to be seen if the IMF accepts this interpretation as their main objective is to raise the revenues which cannot be achieved through this method. It is most likely that the prime minister, despite his well justified concern for the poor consumers, may have to yield to IMF prescription because of financial crunch and strong pressure from the Fund.