IMF, govt agree to revise inflation target to 15 percent

 ISLAMABAD: Pakistan and the International Monetary Fund (IMF) have decided to revise the inflation target to 15 percent from 13.5 percent for the current fiscal year in the wake of rise in commodities’ prices and electricity tariff, The News has learnt.

The inflation target was fixed at 9.5 percent in the budget and later revised to 13.5 percent.
Federal Public Sector Development Programme (PSDP) has been slashed to Rs150 billion from Rs 280 billion. Both sides have also agreed to cut the provincial annual development programmes by 50 percent.


The foreign inflows for budgetary support would fetch only around 0.6 percent of GDP as creditors were not ready to extend money directly to the government owing to lack of confidence in the leadership, said official sources who did not want to be identified. The government would have to arrange most of the financing from domestic sources, they said. Pakistani authorities informed the IMF staff that Sukuk bonds would be issued in the domestic market to raise Rs80 billion in the current fiscal year.

The annual tax collection target for the Federal Board of Revenue was revised to Rs1,655 billion from Rs1,689 billion because of the government’s failure to implement Reformed General Sales Tax (RGST) from October this year, massive shortfall in the first four months (July-October) and expected further delay in RGST and other taxation measures.

Islamabad and the IMF revised the real GDP growth target to 2.8 percent from 4.5 percent. Considering the drop in current account deficit in the first quarter (July-September), both sides agreed to cut its target to 3.1 percent from 3.4 percent. The target of privatisation proceeds was revised from $800 million to $266 million. This amount falls in the category of uncertain inflows.

Deputy Chairman of Planning Commission Dr Nadeem Ul Haq said that all the macroeconomic targets were looked at and adjusted. He conceded that the PSDP was reduced, but declined to share the exact figures. He said that the government would share the picture of macroeconomic situation with donors during the Pakistan Development Forum (PDF).

IMF’s Mission Chief for Pakistan Adnan Mazarei said in a statement after the recent meetings that discussions focused on assessing the impact of the floods on Pakistan’s economy, adjusting policies to respond effectively to the needs created by the floods, and on the outlook for the rest of the year.

“Progress has been made regarding the measures to be implemented in the context of the authorities’ economic stabilisation and reform agenda. Specifically, we have reached broad agreement on the macroeconomic framework and a revised 2010/11 budget deficit target to help flood victims, and rein in inflation, which hurts the poor most.

“The authorities consider that the reformed general sales tax is essential to raise revenue to finance relief for flood victims, poverty reduction, and infrastructure reconstruction. Tax reform is also needed to make the tax system more equitable. The authorities recognise the critical importance of energy sector reform. They have initiated reforms aimed at reducing load shedding, which is severely hurting economic activity; curtailing energy subsidies in order to free up budget resources for spending in priority areas; and resolving the issue of circular debt.

“The IMF remains committed to the ongoing dialogue with the Pakistani authorities, and discussions will continue including around the Pakistan Development Forum to support Pakistan’s efforts to strengthen macroeconomic stability and growth and complete the fifth SBA review.”