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Pakistan bows to IMF pressure

  1. Pakistan bows to IMF pressure
  2. Nestle — wide range of world class products
  3. LPG disappears from the market
  4. Unannounced increase in cigarette prices

Ultimate victims are common people; rich and influential, who owe a huge amount as bank loans to the state, are least bothered

From Shamim Ahmed Rizvi, Islamabad
August 23 - 29, 1999

The IMF mission currently in Pakistan, is following an unusually tough line during negotiations with Pakistani officials. The mission is insisting on implementation of all the conditionalities before the release of the with-held tranche of $280 million.

Pakistan after some initial resistance, is bowing to the pressure of IMF and giving in on almost all the points one by one. As was feared and reported in page (9-15 Aug. 99), Prime Minister has also given in and GST has been imposed on many items besides gas, electricity and petroleum. Prime Minister was initially unwilling to take these steps which would unleash another wave of price hike. He was of the view that he could not do so for political reasons. In view of the prevailing political conditions when, in the aftermath of Kargil fiasco, opposition parties were forming grand alliance, any increase in the prices of utilities would provide a fresh momentum to their campaign to bring the masses on the streets. Grave economic situation has, however, forced him too to take these unpopular decisions.

The four-member IMF team headed by Ms Sena Eken which arrived in Islamabad on August 15, is likely to stay in Pakistan for about two weeks. Pakistani team, headed by Federal Finance Minister Ishaq Dar, comprised of Federal Finance Secretary Khalid Jawed, Special Finance Secretary Abdul Ghafoor Mirza, Central Board of Revenue Chairman Iqbal Farid and State Bank of Pakistan Governor Dr. Muhammad Yaqub and Deputy Chairman of the Planning Commission Ahsan Iqbal. Talks are expected to continue during which Policy Framework Papers, signed earlier, would be updated and signed by Pakistan after incorporating new conditionalities agreed upon by both sides. The IMF delegation report on Pakistan's state of economy, performance and achievements and conditionalities would be submitted to the Fund Executive Board, which is likely to meet in Washington on September 15, 1999 after which the Board would approve the release of the tranche of $280 million under Enhanced Structural Adjustment Facility (ESAF) and Extended Fund Facility (EFF) package of $ 1.56 billion towards the end September or early October.

After the first day's talks, the government issued SRO(i) (99) extending the sales tax net to all branded/packed food (including restaurant foods, and caterers) fresh and frozen meal, milk, yogurt milk based food, table salt, red chilies, ginger and turmeric. GST at the rate of 15 per cent had already been imposed on gas, electricity and petroleum products beside increase in gas prices before the arrival of IMF team. The two-member Committee appointed by the Prime Minister on a panic call of Mr. Dar from Washington is already holding extensive talks with different parties mainly HUBCO and KAPCO to resolve the lingering dispute with the independent power producers (IPPs). IMF team has desired that this matter should preferably be decided during their stay (by the end of current month) or latest by September 15 when the team would be submitting its report for the IMF Board. All these decisions are being taken as part of the government's reconciliatory efforts with the monitoring mission to qualify for the next tranche of $ 280 million.

On Sunday, a Presidential Ordinance empowered the federal government to withdraw these sales tax exemptions on POL products, gas sector and electricity. This ordinance also amended the sales tax act to abolish all fixed schemes by extending two per cent turnover tax on traders and fixed tax on industry.

The government was forced to widen the sales tax net on food items, medicine and other commodities after facing a criticism from the visiting IMF mission which questioned the official tax revenue projection. Senior official sources in the Ministry of Finance said that the mission stressed the need to make further efforts to broaden the GST base regime in order to ensure revenue generation of Rs. 356 billion during fiscal year 1999-2000.

The Mission is also said to have asked the government to take an early decision to raise POL prices. The Finance Minister had already indicated that an increase in the furnace oil prices other items like petrol and diesel are likely to follow in the second phase of rate increase. "POL rate increase has become a compulsion, particularly after the cabinet approval to new pricing mechanism in the domestic market," said an insider. It is commonly believed here that Pakistan has assured the IMF team that the prices of petroleum products would be increased during the month of September. They are trying to convince the IMF that shock therapy of the people of Pakistan should be carried out in phases to minimize the shock impact.

So, the Prime Minister who promised to the nation during his election campaign that he would break the begging bowl to regain the economic freedom, has surrendered whatever little freedom was left. Through these measure he has taxed the poor more than the rich. Despite all these compulsions he has not disturbed the rich and powerful bank loan defaulter who owe to the state about Rs250 billion.