Pakistan set to get $1.2 billion from IMF

ISLAMABAD: Pakistan is set to get the fourth disbursement of $1.2 billion from the International Monetary Fund (IMF) under the Stand-by Arrangement (SBA) later this month.

Sources in the finance ministry told Dawn on Tuesday that documentation was complete for the IMF Executive Board to take up Pakistan’s case on Dec 23. This would be the board’s last major meeting this year.

Transfer of funds, however, is not expected to take much time once the board completes its work.

The sources said the government had signed the ‘Letter of Intent’ at the successful third review of the economic programme supported under the SBA and submitted to the IMF.

The Dubai meeting between the Pakistan officials and an IMF staff mission led by Adnan Mazarei had remained inconclusive. Two rounds of discussions were held in Dubai and Washington early this month to complete the review, the sources said.

The government’s Letter of Intent, Supplementary Memorandum on Economic and Financial Policies, and the Technical Memorandum of Understanding described the policy implementation to date and laid out additional policies agreed to in the context of the review.

The document also contained recent developments in the country’s economy, review of policies for the remaining period of fiscal year 2009-10, government’s fiscal policy and programme financing.

During discussions the government assured the IMF and the World Bank that a draft VAT law would be submitted to parliament by the end of December.

The Dubai talks focused on country’s recent economic performance, the outlook for the rest of current fiscal year and policies needed to consolidate macro-economic stability and reduce poverty.

The Federal Board of Revenue has shared the draft VAT law with all the provincial governments.

The proposed legislative amendments to be sent to parliament are aimed at harmonising the income tax and GST laws, including the tax administration purposes.

However, it would depend on parliament to approve or disapprove the VAT law, and this is a point that has been explained to both the IMF and the World Bank.

The GST adopted by Pakistan in 1990 was, in principle, a value-added type of tax at the manufacturing and import stages.

However, it was problematic at the outset due to the high level of exemptions, fixed taxes for certain industries, inconsistent definitions, complexities regarding input tax credits, and very weak administration.

Worldwide experience shows that a well-designed VAT, with a broad base, limited exemptions, a single rate, and a high threshold, can be an efficient revenue-raising instrument and a powerful vehicle to modernise the tax administration.