By Hamza Ameer Islamabad : , November 23rd, 2009 – In a significant decision by Pakistan’s Imran Khan government, Islamabad agreed to reduce expenditures and impose more taxes in order to revive the bailout package of $6 billion it received from the International Monetary Fund.
According to the Pakistani government, the necessary steps must be completed within the next two months.
This could indicate a significant rise in inflation in Pakistan in the coming days.
Shoukat Tarin was the advisor to the Prime Minister in Finance.
He described what he considered difficult and harsh negotiations.These conditions were very demanding and would consume considerable political capital.
If implemented as written and verbally, he predicted another round of inflation.
Tarin stated that the Federal Board of Revenue’s tax collection goal has been raised to Rs.6.1 trillion, an increase of approximately Rs 300 billion.The government will need to also get the amendment bill for the State Bank of Pakistan (SBP), approved by the Parliament.
Tarin stated that the power tariff would rise in the coming months.It currently stands at 50 paisa/unit.Tarin clarified however that the quantum of the increase would depend on the amount of circular debt.
The agreement of Pakistan to the IMF’s strict conditions will be viewed as another bitter pill to swallow by locals already in pain from the Rs 3.63/unit increase in tariff.In the span of just 90 days, petrol prices were also increased by around Rs 20.
This revelation came after Pakistan had agreed with IMF that it would take steps to obtain approval for a $1 billion tranche of its loan.
According to an IMF statement, “The Pakistani authorities have reached a staff level agreement regarding policies and reforms required for the completion of the sixth review under EFF.”
Tarin admitted, however that these steps will further cause miseries and problems in the lives for the poorer income group.He said targeted subsidies would help them.
Pakistan was directed to maintain a surplus in its primary budget after paying for debt servicing.
This is against the target budget of Rs 376 Billion deficits.It will need strict fiscal discipline, which could have serious consequences on the economy.
The IMF didn’t seem to change its rigid position in negotiations.Pakistan was left with no choice but to accept its deficits and to agree to tough terms to restore its financial bailout.
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