IMF Demands Elimination of Power Subsidies

ISLAMABAD, News Trends: The International Monetary Fund (IMF) has demanded elimination of power subsidies and reform s in tax policy.

IMF has criticised slow progress on taxation and power sector reforms. In the first round of policy discussions, a review mission of the IMF and World Bank headed by Adnan Mazarei held meetings with Finance Minister Dr Abdul Hafeez Shaikh on tax reforms and the macroeconomic situation and with Minister for Water and Power Raja Pervez Ashraf on power sector reforms.

According to sources, the joint review mission expressed displeasure over slow progress on elimination of power subsidies and urged the government to move quickly towards a ‘subsidy-free regime’.

It expressed concern over ‘half-hearted rationalisation’ of tariff and was particularly unhappy over non-completion of a consumer classification survey, fuel efficiency audits and a plan to eradicate circular debt in the energy sector.

Raja Pervez said that ending circular debt and subsidies required a 35 per cent tariff hike during the current year which could not be implemented in one go because of political repercussions and economic difficulties of people who were already suffering because of inflationary pressures.

He assured the IMF-WB team that a gradual process of tariff ‘rationalisation’ was in progress with two per cent increase made last month and another two per cent to be notified in two or three days after its clearance by the political leadership.

The monthly adjustments would continue throughout the year, he said.

World Bank, IMF step up aid to Pakistan

WASHINGTON: The World Bank on Thursday raised flood aid to Pakistan to one billion dollars while the IMF approved 450 million dollars in emergency financing to help the nation cope with its worst-ever humanitarian disaster.

IMF/EU suspend talks with Hungary

BUDAPEST: The IMF and EU suspended a review of Hungary’s funding programme, set up in 2008 to save the country from financial meltdown, saying it must take tough action to meet targets for cutting its budget deficit.

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IMF/EU suspend talks with Hungary

US weighs military option in Pakistan: report

WASHINGTON: An American newspaper says the US military is developing plans for a unilateral attack on the Pakistani Taliban in the event of a successful terrorist strike in the United States that can be traced to the militant group.

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US weighs military option in Pakistan: report

IMF chief sees faster global growth

WASHINGTON: The IMF sees global economic growth of 4.

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IMF chief sees faster global growth

IMF calls for country-specific exits from stimulus

WASHINGTON: The International Monetary Fund”s policy-steering body, the International Monetary and Financial Committee (IMFC) Saturday called for the implementation of country-specific exits from stimulus, and pledged to deliver on the long-expected quota and governance reform.

“The worst is definitely behind us. But, we are not out of the woods yet. We see a strengthening of economic recovery, but we also see an unevenness in this recovery, unevenness within countries, and unevenness between countries,” Youssef Boutros- Ghali, IMFC chairman and Egyptian Minister of Finance, said at a press conference after a meeting of the committee in Washington.

IMF Managing Director Dominique Strauss-Kahn echoed his view on the same occasion, saying that recovery has been faster in Asia and more sluggish in other parts of the world such as Europe and Japan.

“We will continue to work to phase in country-specific exits from stimulus, recognizing the diverse pace of recovery and potential spillovers across countries and regions,” the committee said in a communiqu issued after its meeting, which is part of the IMF/World Bank spring meetings.

The communiqu echoed a Friday statement of the G20 finance ministers and central bank governors, who said stimulus measures should be maintained in economies where growth is still highly dependent on policy support until the recovery is firmly driven by the private sector and becomes more entrenched.

Noting that problems in the financial sector were at the heart of the recent crisis, the committee said: “Strengthening financial regulation, supervision, and resilience remains a critical but as yet incomplete task.”

“We agree to redouble efforts to forge a collaborative and consistent approach for a stable global financial system that can support the economic recovery,” said the committee.

It said it is looking forward to the completion of reviews under the Financial Sector Assessment Program of countries with systemically important financial systems and support continued efforts to map systemic risks and transmission channels.

On the controversial bank tax, the committee said the IMF is working on “a range of options on how the financial sector can make a fair and substantial contribution to cover the burden” of strengthened regulation.

“If you want really to decrease the likelihood of the crisis, if you want to curb the behavior, I need to have different tools,” said Strauss-Kahn.

He stressed that the bank tax should not replace but goes together with regulation.

The committee welcomed the recovery in many low-income countries, contributing it to their improved microeconomic frameworks, effective policy responses and the support of the international community.

It welcomed the IMF”s recent adoption of a framework for mobilization of loan resources for concessional lending to low- income countries and said the IMF is considering proposals for providing debt relief to countries hit by major disasters such as Haiti.

“2010 will see 65 million people added to the lines of poverty. Eighteen million in Africa … this was inadmissible and that we should push for additional resources, additional support, within IMF, and within other international organizations,” said Ghali.

The committee urged members to approve the quota and voice reform package adopted by the IMF in 2008, which aims to increase the representation of developing countries.

“We urge all members to promptly consent to the 2008 quota and voice reform … we call for an acceleration of the substantial work still needed on the full range of the quota and other governance reforms,” the communiqu said.

On April 28, 2008, a large-scale quota and voice reform package was adopted by the IMF Board of Governors, with the aim of making quota more responsive to economic realities by increasing the representation of fast-growing economies and giving low-income countries more say in the IMF”s decision-making.

The package called for, among other things, a new quota formula, ad-hoc quota increase to all 54 countries that were under- represented, tripling the number of basic votes to increase the voice of low-income countries, realigning quota and voting shares every five years. For the package to become effective, the approval of 112 member countries representing at least 85 percent of total voting power is required.

According to a report of the IMF”s Executive Board to the IMFC, 70 members, representing about 73 percent of voting power have accepted the package to date. Strauss-Kahn said member countries have shown strong political will in pursuing the reforms, a proof of confidence in multilateralism.

Forex reserves flat at $15.05bn

KARACHI: Pakistan”s foreign exchange reserves were flat at $15.05 billion in the week ending on April 17, unchanged from the previous week, the central bank said on Thursday.

Reserves held by the State Bank of Pakistan (SBP) fell to $11.11 billion from $11.16 billion a week earlier, while those held by commercial banks rose to $3.94 billion from $3.89 billion, said the SBP”s chief spokesman, Syed Wasimuddin.

Pakistan”s foreign reserves hit a record high of $16.5 billion in October 2007 but fell steadily to $6.6 billion by November 2008, largely because of a soaring import bill.

Budget deficit to overshoot target

KARACHI: Pakistan”s budget deficit may reach 5.5 percent of gross domestic product this fiscal year, officials said on Thursday, overshooting a 5.1 percent target agreed with the International Monetary Fund (IMF).

The IMF board is scheduled to meet on May 3 to discuss the approval of a fifth tranche of a $1.2 billion loan.

“There is now a fear that the budget deficit for the current fiscal year may go beyond 5.2 percent and may touch 5.5 percent,” said a senior official in the Planning Commission, who is also involved in drawing up the next budget.

Big security-related spending and a shortfall in aid promised by allies were the main reasons for the growing deficit, the official said.

The government”s original budget deficit target for the 2009/10 (July-June) fiscal year was 4.9 percent of GDP. It later revised it to 5.1 percent.

Analysts and officials have also identified low revenue collection as another reason for the widening deficit.

Exacerbating the problem, the government was still paying out subsidies in the power sector, said Asif Qureshi, director at Invisor Securities.

The government had targetted an increase of 19.2 percent year-on-year in revenue collection for the 2009/10 fiscal year.

But according to official data, revenue collection increased by only 11 percent year-on year in the first eight months of the fiscal year.

The target for revenue collection this fiscal year is 1,380 billion rupees ($16.46 billion).

REVENUE SHORTFALL

However, the Planning Commission official said there could be a shortfall of up to 40 billion rupees in revenue collection.

The central bank last month also raised its fiscal deficit forecast for the 2009/10 fiscal year to between 5.0 percent and 5.5 percent of GDP, compared with its previous forecast of 4.7-5.2 percent.

The budget deficit for the first six months of the fiscal year was 2.7 percent of GDP. It was 5.2 percent of GDP in 2008/09.

The advisor to the prime minister on finance, Hafiz Shaikh, left for Washington on Tuesday for the IMF”s and World Bank”s spring meetings on April 24-25.

Sources said Pakistan would also discuss issues pertaining to value added tax (VAT) and electricity tariffs.

“The issues of VAT and electricity tariffs have not yet been resolved and they are likely to be discussed on Hafeez Shaikh”s visit to the IMF and World Bank,” said a Finance Ministry official.

Pakistan had promised the IMF it would introduce VAT by July 1 but analysts and officials said there seemed to be doubts over the plan.

The IMF wants Pakistan to introduce a VAT to raise its ratio of tax revenue to GDP by 3 to 4 percent.

The IMF said this month the introduction of a broad-based VAT by the July target date was “essential”.

Under the IMF programme, the deadline for an increase of 6 percent in electricity tariffs was April 1 but the government has not raised the tariff and analysts said the government was likely to ask for a waiver.

IMF to start sales of 191.3 tonnes of gold soon

WASHINGTON: The International Monetary Fund on Wednesday said it will shortly begin selling 191.3 tonnes of gold in the open market under a program approved last year to boost its resources for lending.

To avoid disruptions of the gold market, the IMF said the sales “will be conducted in a phased manner over time.” The fund left the door open for central banks to keep buying the gold directly from the IMF.

The IMF announced last year it would sell a total of 403.3 tonnes of gold, about one-eighth of its total stock, to diversify its sources of income and increase low-cost lending to poor countries.

Until now, the gold has only been made available to central banks on a first-come-first-serve basis. So far, India — the world’s biggest consumer of gold — Mauritius and Sri Lanka have purchased a total of 212 tonnes of gold from the IMF.

The Reserve Bank of India was the biggest purchaser, snapping up 200 tonnes of the IMF gold over two weeks in October, boosting its gold holdings to the 10th largest among central banks.

IMF Finance Director Andrew Tweedie told IMF Survey publication that the average price for the three sales was a little over $1,050 an ounce, generating about $7.2 billion in proceeds and a profit of about $4.5 billion over the book value of the gold in the IMF’s accounts.

The price of gold has increased by 20 percent over the past two years. Spot gold traded at about $1,104 an ounce on Wednesday after peaking at $1,126.85, its highest since Jan. 20.

The IMF said central banks could continue to buy the gold, which would reduce the amount of gold available for sale on the open market.

“We are still open to off-market sales, so that window has not closed,” Tweedie said, adding: “All that has happened now is that we are moving to also start on-market sales.”

He said the sales would be based on market prices.

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IMF to start sales of 191.3 tonnes of gold soon was first posted on February 18, 2010 at 4:16 pm.

Political Turmoil Harming Pak’s Progress: IMF

WASHINGTON : Pakistan’s economy is showing some signs of recovery but delays by donors in handing over promised aid threaten its ability to meet targets under its International Monetary Fund loan program, Pakistani finance officials said in documents released by the IMF on Thursday.

In a memorandum to the IMF dated Dec. 11, 2009, Governor State Bank of Pakistan Salim Raza and Finance Minister Shaukat Tarin said the aid delays have increased pressure on the budget and domestic financing, and could limit scope for more necessary spending at a time when security needs are growing.

Pakistan and the IMF have urged donors to follow through on the $5.7 billion in aid promised at a conference in Tokyo last April.

To raise its revenues, Pakistan plans to introduce a Value Added Tax. The officials said they remained committed to regulations to implement the tax by July 1, 2010.

The IMF bailed out Pakistan in November 2008 to avert a balance of payments crisis and in July increased the loan to the country to $11.3 billion from an initial $7.6 billion.

In a staff report also released on Thursday, the IMF said Pakistan’s performance under the IMF program was uneven but credited it for moving forward on most key reforms despite difficult security and other circumstances.

It also raised concerns about delays in aid disbursements to Pakistan, saying the amount of aid projected to be disbursed in 2009/10 has been revised by some $900 million less than expected.

The IMF said that Pakistani officials had reaffirmed their commitment to an annual fiscal deficit of 4.9 percent of gross domestic product. However, if the Tokyo aid pledges were a lot lower than projected, the deficit would need to be reduced further, possibly by up to 0.4 percent of GDP, staff said.

They said “a fluid” political situation, security issues and the lack of broad support for economic reforms raised risks to Pakistan’s IMF program and affected investor confidence.

They said underlying vulnerabilities to Pakistan’s economy were high and had increased in some areas including revenue shortfalls, weak credit performance, energy subsidies and dependence on commodity imports.

Meanwhile, Pakistani banks were well capitalized but nonperforming loans are growing, according to IMF financial soundness indicators at the end of September.

The 2009/10 outlook for economic growth in Pakistan is unchanged, with inflation year-on-year rising to 11 percent from 9 percent reflecting a rebound in fuel prices and increases in electricity tariffs, the Fund added.

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Political Turmoil Harming Pak’s Progress: IMF was first posted on January 8, 2010 at 3:42 pm.

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