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Home | Press Release
Carbon tax on POL products not IMF’s conditionality’
 admin May 3, 2010, 03:27:30 AM 

ISLAMABAD: The levying of carbon surcharge on POL products at fixed rates was the decision of the government of Pakistan and the International Monetary Fund (IMF) did not ask for its imposition as conditionality under the Stand-by Arrangement (SBA). This was stated by, Country Representative of IMF for Pakistan, Paul Ross on Monday, while talking to reporters after addressing a seminar titled ‘Global Financial Crisis and Role of the IMF’ organised by NUST Business School (NBS). He said that IMF would pursue Pakistan’s tax authorities to move ahead towards value added tax (VAT) mode from the next fiscal year 2010-11 to bridge its growing revenue needs for national development. Ross said that Pakistan and the fund’s authorities would hold next round of talks by early July 2009 in Dubai to review the steps taken by the government in the budget 2009-10. Earlier, in his address during the seminar, he said that the IMF’s programme was successful as it encouraged Islamabad’s development partners to make over $5 billion pledges during the Tokyo’s conference. “Pakistan’s economy is facing challenges in terms of materialising $2 billion pledge made by the Friends of Democratic Pakistan (FoDP) during the Tokyo’s conference for the next fiscal year 2009-10,” he added. Answering a query about Islamabad’s request for additional $4 billion stand-by facility in case of delayed funding of $2 billion from FoDP in 2009-10, he replied that the executive board of the IMF would take the final decision on this subject. “The key challenge for Pakistan is to reduce vulnerability to external shocks, which increased manifold owing to low revenue generation,” he said in his address and added that the lowest tax to gross domestic product (GDP) ratio in the range of 9 percent also resulted into shrinking the cushion for spending on development projects especially for social sectors of the country. He said that Pakistan requested loan from the IMF by November 2008 under 23-month SBA programme after witnessing macro-economic stability in the last few years because the fuel and food shocks created fiscal imbalances. This situation hiked the fiscal deficit in 2007-08 after which the government had to borrow from the State Bank of Pakistan, which spiked inflationary pressure. “The transition in government also resulted into indecisiveness after which foreign reserves started depleting and rupee depreciated,” he said and added that the government took a lot of time before formally joining the IMF programme as the government tried to explore all other avenues to avoid the IMF. The IMF’s program, he said, helped Islamabad in building its foreign currency reserves, achieving stable exchange rate, controlling fiscal and external deficits and enhancing government’s ability to generate resources through T-bills. He said that Pakistan’s exports and remittances could face negative impact of global financial crisis. The capital inflows such as the FDI are also going to face a negative impact. The IMF’s programme, he said, was focusing upon bringing reforms on taxation side where they would move towards VAT mode. He said that there was a dire need to spend money on the social sector especially health and education but it required revenue generation as only 1 percent population was paying their due taxes. The tax-to-GDP ratio is standing at the lowest rate of 9 percent and there is a need to broaden the tax base, he added. Answering a query about discount rates, he said that the discount rate was reviewed on the basis of reduction in inflationary pressure. Last time, the IMF allowed to decrease the discount rate because it thought there was space available, which should be passed on to revive economic activities. He said that Pakistan required stabilisation because investment could not be attracted by an economy where there was no macro-economic stability. “The IMF policies are not anti-growth as Pakistan achieved 2 percent GDP growth in the outgoing fiscal year,” he said and added that it was not the economy like many other countries, which achieved negative growth in 2008-09.

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