Pakistan must broaden tax base, improve debt management: IMF

* IMF says ‘remains committed to the ongoing dialogue with Pakistan and discussions will continue in the weeks ahead’

By Sajid Chaudhry

ISLAMABAD: The International Monetary Fund (IMF) has pressed Pakistan for expanding its tax base through tax reforms and improving debt management to reduce deficit in the budget 2011-12, which is likely to be unveiled on May 28. However, the IMF has agreed to relax Pakistan on the reformed general sales tax (RGST) issue and asked it to get it approved from parliament through the Finance Bill 2011 and withdraw general sales tax (GST) exemptions. It also called for making part of the finance bill those GST exemptions still needed to be withdrawn.

A Pakistani team completed its seven-day talks with an IMF mission on Tuesday in Dubai to reach an accord on targets for the budget to cover the coming fiscal year.

The IMF endorsed the budgetary targets for the fiscal year 2011-12 with a direction to build them on more realistic lines to ensure smooth implementation.

An IMF statement issued at the conclusion of the talks states, “Pakistan’s economy faces important challenges. Economic growth has been negatively affected by the floods and the high price of oil, inflation remains persistently high, and budgetary problems are undermining macroeconomic stability.”

“Discussions centered on measures to reduce the budget deficit in 2011-12 as well as quasi-fiscal operations (for instance, the procurement of agricultural commodities) to reduce inflation, assure fiscal sustainability, and protect the external position.”

“Reducing the budget deficit will require higher revenue through tax reforms to broaden the tax base, including steps to implement reforms in the general sales tax. Measures to reduce spending on general subsidies in the energy sector have begun to be implemented. The quality of expenditure could be improved by increasing the share of spending on health, education, and infrastructure.”

“The IMF remains committed to the ongoing dialogue with Pakistan and discussions will continue in the weeks ahead and a mission is planned for July 2011,” the statement concluded.