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IMF tells Pakistan: no compliance, no money

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IMF tells Pakistan: no compliance, no money
Monday, April 12, 2010

By Khalid Mustafa

ISLAMABAD: The International Monetary Fund (IMF) has conveyed to Pakistan that the Fund is not an economic arm of the US and will not be influenced by Washington with regard to giving relief to the country. The Fund wants 100 per cent compliance from Pakistan on the issue of implementation of VAT from July 1 and power tariff raise from April 1.

During the Pak-US strategic dialogue, Islamabad had asked the US authorities to influence the IMF for a waiver in the power tariff increase of six per cent due from April 1 and the implementation of the VAT from July 1, 2010.

“Following this attempt of Pakistan, the IMF conveyed to Pakistan that it is not the economic arm of the US and wants 100 per cent implementation. Otherwise, it will take back its entire amount from Pakistan, as it did with Russia. So, implement the programme in letter and spirit,” a close aide to theadviser to the prime minister on finance and revenue told The News.

The IMF’s Director for Middle East and Central Asia, Adnan Mazari, is currently visiting Pakistan to settle these issues before the approval of the fifth tranche of $1.2 billion under the IMF’s $11.3 billion bailout package.

The Fund mission has extended its stay till Tuesday, as it wants clear-cut commitments from Pakistan over compliance of its covenants for the $11.3 billion Standby Arrangement loan. The official said the government had never been committed to implementing the VAT, as it was only interested in engaging the IMF and keep getting released the amount under the $11.3 billion bailout package, as the FBR had not trained its staff so far to collect the VAT and taxpapers had also not been educated as to how to maintain their documents with regard to the VAT implementation. So far, the government has got $6.4 billion from the IMF under the bailout package.

So much so, the Punjab is not on the same page with the Centre on the VAT issue, as the ruling party in the Punjab does not want to invite the wrath of the business community, particularly the retailers, which are the vote bank of the Pakistan Muslim League-Nawaz.

Had the government been serious about implementing the VAT from the day one, it would have conducted a study on the subject whether it is inflationary or not and if it also suits Pakistan wherein the literacy rate is too low and agriculture is the main component of the economy. Only three-and-a-half months are left to meet the deadline of implementing the VAT, but no study has so far been conducted on the subject. It shows that the government seems not serious about implementing the VAT from July 1. Although, the government has managed to table the VAT bill in parliament and the four provincial assemblies, it seems that the bill will not be passed in time because of some divergence of opinion from Sindh and the Punjab.

Pakistan has failed to bring the net borrowing from the State Bank at zero at the end of the quarter, which is under review. However, amid increasing riots in the wake of the 9-16-hour loadshedding across the country, the incumbent regime is in a fix whether to increase the power tariff or not, keeping in view the hardline of the IMF, which wants the 100 per cent implementation of the programme.

The government fears severe agitation across the country if it complies with the IMF condition to increase the power tariff from April 1. The impact of six per cent power tariff has been worked out at Rs 30 billion, according to the latest working on the subject. In case the power tariff is not increased, from where the huge amount of Rs 30 billion would be adjusted? In this scenario, the budget deficit target of 5.1 per cent will be breached, which the IMF does not like in any case. Otherwise, the government will be left with no option but to take a massive cut on the development budget and keep the financial releases to development projects not more than Rs 200 billion in the fiscal.

Earlier, the economic managers team, headed by then finance minister Shaukat Tarin, had decided to reduce the development budget to Rs 250 billion, but Prime Minister Yousuf Raza Gilani increased it to Rs 300 billion. Now, in the new situation, if the government does not increase the power tariff, it would have to chop up the development budget to Rs 200 billion.

The government’s own survival lies in not raising the power tariff as the masses are already on the roads demonstrating against the government for want of electricity. The power deficit has swelled to 5,000 MW.

The special committee, headed by Dr Hafeez A Sheikh and comprising Minister for Petroleum and Natural Resources Naveed Qamar and Minister for Water and Power Raja Parvaiz Ashraf, is vigorously working on a plan to increase the power supply and take a position on the power tariff raise. The committee is to meet today (Monday) and take the final position on the power tariff after getting input of the top man of the country, President Asif Zardari.

The World Bank and the ADB are also all set to come up with their own input on the issue of power tariff raise and the modus operandi to tackle the monster of circular debt, which has emerged again and put the stress on the oil supply to thermal powerhouses. According to the documents available with The News, the Pakistan State Oil has lowered the fuel supply to power generation houses as refineries have slowed down the supply to PSO because of the adverse impact of the circular debt.

Meanwhile, the fiscal constraints of PSO have increased manifold, as its dues have swelled to Rs 117 billion as of April 9, 2010. Out of this, Pepco owes Rs 42.4 billion to PSO, Hubco Rs 41.9 billion, Kapco Rs 22 billion, PIA Rs 1.3 billion and KESC Rs 743 million.

However, PSO owes Rs 76.3 billion to refineries. This is the main reason why the refineries have reduced their production substantially and lowered their POL supply to PSO. This is the main reason why PSO has decreased the fuel supply to power generation houses.

In the wake of massive reduction in fuel supply to power generation, the fuel stock with the power generation house at Muzzafargarh has only one-day consumption. The capacity of power generation house at Muzzafargarh stands at 1,100 MW. However, the oil stock with Kapco (Kot Addu Power Company), which has the capacity to generate electricity up to 1,280 MW, has three-and-a-half-day consumption. Similarly, the oil stock with Hubco, with the generation capacity of 1,200, has hardly two-day consumption and with the AES (Pak Gen and Lalpir), the oil reserves have dwindled to six-hour consumption only. This scenario has emerged because of the inter-corporate debt.
 
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All policies that are beneficial in the Long term, hurt a bit in the short.. I think its a good move by IMF and will benefit Pakistan in the long run
 
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I think we should not take more loan debt instead if we can get debt relief for existing debt it shoudl be our top priority
 
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During the Pak-US strategic dialogue, Islamabad had asked the US authorities to influence the IMF for a waiver in the power tariff increase of six per cent due from April 1 and the implementation of the VAT from July 1, 2010.

“Following this attempt of Pakistan, the IMF conveyed to Pakistan that it is not the economic arm of the US and wants 100 per cent implementation. Otherwise, it will take back its entire amount from Pakistan,

Did pakistan asked US to influence the IMF?? Thats very laughable. :rofl:

And what a response from the IMF !!
 
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LOL, Pakistan I salute you.

Our new logo:

Great People to Deal With
 
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IMF is a front for a group of lending countries and of course it is used as a political tool by U.S which is the largest provider to this funding mechanism. So there is definitely politics involved in the situation. I am sure that if Pakistan Army acts against some more Taliban (kill / arrest) over the next days, it will be easier for Mr. Shaukat Aziz in the negotiations and to get the money for Pakistan.
 
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IMF is a front for a group of lending countries and of course it is used as a political tool by U.S which is the largest provider to this funding mechanism. So there is definitely politics involved in the situation. I am sure that if Pakistan Army acts against some more Taliban (kill / arrest) over the next days, it will be easier for Mr. Shaukat Aziz in the negotiations and to get the money for Pakistan.

Whats Shortcut Aziz got to do with this. lol.
 
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in a way its gud. at least this will make sure that we get the VAT bill passed and fiscal spending is taken care off.

there is a right time for everything! VAT now will be the last nail in the coffin for all! inflation is high,electricity is not available and on top of it you introduce VAT! its like ordering people to commit suicide:no:

i think VAT is essential but with time and proper planning and infrastructure in place! not something done over night under current situation of the nation! :coffee:
 
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Whats Shortcut Aziz got to do with this. lol.

Oooopssy, my bad. I must have meant Shaukat Tarin. You see the first names and the predicaments are so similar that it is difficult to make out which Version of the IMF lending is going on.....:cheesy:
 
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Oooopssy, my bad. I must have meant Shaukat Tarin. You see the first names and the predicaments are so similar that it is difficult to make out which Version of the IMF lending is going on.....:cheesy:

Tasteless dig.

And you are wrong again. The IMF will negotiate with Dr. Abdul Hafeez Sheikh's team.
 
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Oooopssy, my bad. I must have meant Shaukat Tarin. You see the first names and the predicaments are so similar that it is difficult to make out which Version of the IMF lending is going on.....:cheesy:

LOL, wrong again.

Whats Shaukat Tarin got to do with this.

Jalney waley ka moon kala.
 
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LOL, wrong again.

Whats Shaukat Tarin got to do with this.

Jalney waley ka moon kala.

Oh my god!!!! you are right again and I just continue to be wrong in our little discussion..... Both Mr. Shaukats have now moved away from the Pakistan economics and planning!!!! About similiar circumstances :what: But good to see that Mr. Tarin will continue to be in Pakistan.


Tasteless dig.

And you are wrong again. The IMF will negotiate with Dr. Abdul Hafeez Sheikh's team.

Hello again Sir. Regret the tasteless dig.... it has been raining in Barcelona since last night and weather has a way of growing on you. Waste of the sunshine from the weekend really. But I look forward to writing better "tasting" remarks tomorrow from Istanbul. CNN says that it is quite sunny there.....
 
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