sparklingway
SENIOR MEMBER
- Joined
- May 12, 2009
- Messages
- 3,878
- Reaction score
- 0
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 IMFs 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 IMFs $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 governments 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.
But good to see that Mr. Tarin will continue to be in Pakistan. 
