Asia Times: Tough IMF conditions may boomerang on Pakistan's Sharif



	August 10, 1999	atimes.com

India/Pakistan

Tough IMF conditions may haunt Pakistan's Sharif
By Nadeem Iqbal

ISLAMABAD - In trying to secure the third tranche of a $1.6 billion loan from the International Monetary Fund for Pakistan, Prime Minister Nawaz Sharif is risking a further erosion of his popularity.

The release of $280 million following a mid-term review later this month by the IMF depends on the Sharif government's implementing as many as 22 conditions, including a tax on agriculture. Harder still to comply with is the demand that a general sales tax (GST) be extended to public services and utilities, which would trigger a 30 percent increase in prices of petroleum and electricity and a hike of 35 percent in gas prices.

On August 4, the federal cabinet tentatively approved some new measures, including a 15 percent GST on petroleum products and natural gas, but deferred an announcement for fear of public disapproval. An apprehensive federal cabinet has twice earlier in the past two weeks put off taking a decision that journalist Mir Jameel ur Rehman, a former government adviser, thinks would be playing straight into the hands of the opposition.

''The steep price hike can serve the opposition well,'' he says. It would galvanise their protests which currently are no threat to the government because they have failed to transform the rallies into a mass movement, he explains.

In the wake of Pakistan's withdrawal from the Kargil sector of Kashmir, opposition parties, particularly Islamic hard-liners, have been on the streets protesting against the government's retreat under U.S pressure and a rumored secret deal with Washington for the capture of Saudi fugitive Osama bin Laden.

''At present there is no way out for the government except to accept all the IMF conditions,'' avers Dr. Sarfraz Khan Quershi, director of the Pakistan Institute of Development Economics. ''This installment is crucial and would help prop up the beleaguered economy.''

A high-level IMF mission is arriving in Pakistan on August 15 to review the implementation of its conditions. ''The mission will prepare a report to be presented to the IMF Executive Board meeting scheduled before the annual meeting of the IMF in the last week of September,'' a Finance Ministry official said. ''In case, the first meeting is delayed, the tranche will not be released before October.''

Trying to smooth out the bumps ahead, Finance Minister Ishaq Dar said recently that the government would not let the imposition of GST have any significant inflationary effects on consumer prices. Excise duties will be reduced pro-rata on affected services and utilities, the government said.

Qureshi believes this is unreasonably optimistic. ''This will not succeed in circumventing the overall inflating impact on the family [and] lessening public anxiety,'' he argues.

Even Dawn, a leading English-language newspaper, has cautioned the government against using the GST to cover the anticipated increase in the budgetary gap by about $2 billion in the first month of the 1999-2000 fiscal year. ''This additional burden has been imposed by the additional expenditure of about $700 million on Kargil and an increase of six dollars a barrel for oil imports as the world oil prices have jumped from 14 dollars a barrel to 21.''

Already the IMF has expressed its doubts about the Pakistani Central Board of Revenue's ability to collect the budgeted revenue of $7 billion. Last year the government had estimated a roughly similar amount, but by year-end it had not collected more than $6.16 billion, Dawn said.

Earlier attempts by governments to impose GST in Pakistan have not succeeded. In 1994, when the previous government tried to push it through, an unwilling business community brought all the major cities to a standstill for five days. Sharif's party, which was then in opposition, supported the strike.

Now in power, it has been trying in vain to persuade business to accept the tax ever since the signing of the new ESAF/EFF (Enhanced Structural Adjustment Facility/Extended Fund Facility) with the IMF in 1997.

Originally the IMF review team was scheduled to visit Pakistan immediately after the annual budget was presented in June and submit its report to the board at its end-July meeting. But because of the Kargil crisis the visit was delayed. Concern that it may be postponed to after September - a six month delay of the tranche - had the finance minister, governor of the central bank and finance secretary rushing to Washington to plead the urgency of their case.

As the government readies for next week's visit, journalist Rehman thinks the timing could not have been worse for Sharif. ''Traditionally these three months [September to November], with their pleasant weather, are a time for long marches to oust the government. Already people are being mobilized to come out on the street. The price hike could spur the movement.''

(Inter Press Service)

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