Sources in the finance ministry said the IMF delegation was seriously concerned over increasing government borrowing from the State Bank of Pakistan and wanted it to curtail through management of expenditure and increasing revenue collection. It also wanted the government polices to be fine-tuned to meet the growing challenges to its economy in the wake of recent developments.
Pakistani side comprised Federal Minister for Finance Dr Hafeez Shaikh, State Bank of Pakistan Governor Shahid Hafeez Kardar, Planning Commission Deputy Chairman Dr Nadeem-ul-Haq and officials of the finance ministry and the SBP as talks were held on review of macroeconomic policies for 2009-10 and economic outlook for 2010-11 with Pakistani side was unable to make any projections with certainty for the next year.
As far as inflation is concerned, they said the Monetary Policy could only be effective with respect to inflation when it is in tandem with fiscal and all other economic policies and it (Monetary Policy) cannot control inflation when borrowing from the SBP, petroleum prices and power tariff are on rise.
Thus any prediction about inflation for the outgoing fiscal year is not possible in such circumstances. At least an increase of 17.6 percent in the price of power is likely to be made periodically till June 2011 to bridge the difference between generation cost and recovery. The monthly increase is likely to be 2.2 percent now instead of 2 percent and the IMF wanted that apart from elimination of subsidies, the government focus should be on making power sector more efficient by minimising its losses.
An official of the Ministry of Finance said although the IMF shown serious concern about slippage on fiscal side, their greater anxiety is about delay in enforcement of Reformed GST and it is important for Pakistan to remain in the programme. When asked about any thinking in government to wind up the standby arrangement with the IMF on positive note, they said it is not possible now as Pakistan has missed most of the targets. It might have been possible to end the programme on positive note by meeting all the targets if reforms in power sector and enforcement of RGST would have been implemented from July 2010 but now it is too late, they added.