By Ikram Hoti
ISLAMABAD: The IMF deal will bring the consumers, subscribers and provincial governments on a collision course after its hidden conditions will be revealed.
The major controversy is about the interest rate to be paid by Pakistan. The standby facility being offered is said to be the highest ever on a soft-loan mark-up of 3.51 to 4.51 per cent agreed to by any country for foreign currency bailout.
Pakistan has never obtained structural adjustment facility loan or balance of payment assistance on mark-up rates higher than 3 per cent.
Bangladesh had obtained a US $ 490 million concessionary credit under a three-year standby loan at 2.9 per cent which was discounted later on to make suitable adjustments. All other developing countries have obtained such loans at three or below three per cent mark-up rates, mostly applying for discount which was granted in most cases.
Dr Salman Shah, former adviser on finance to the federal government, said the mark-up should not be a big problem, but the conditions attached to this loan were worrisome.
The new loan to Pakistan for which the two sides agreed on Saturday is stringed to conditions for increasing tolls, energy price and taxes by fiscal and administrative measures in 2009, sources told The News here on Saturday.
They added that the fine print of the agreement would not carry details about the consumer and subscriber-hurting hikes but the Policy Framework Paper would contain them and once these details were out “the provincial governments would have to make adjustments that would be highly controversial.”
The transport tolls might be increased four times for the commercial and non-commercial vehicles in 2009-11, while the energy rates would be increased by more than 30 per cent over this period.
Electricity prices would be increased at least by 32 per cent, gas by 39 and petroleum prices (aggregate) by 15 per cent.
Likewise, medicine prices would also be increased as the payable income tax would fiscally and administratively be increased on the pharmaceutical companies by at least 100 per cent. They are not facing the GST implementation presently, but “that too would be imposed in the process,” said the sources.
When asked if the government was going to increase the taxes too, Member Federal Board of Revenue and its chief spokesman Mehmood Alam said: “The target might be increased.”
The FBR sources revealed that 10 per cent increase over a trillion rupees target set for the current financial year would be inevitable. That would mean Rs 100 billion additional taxes soon to be imposed through fiscal and administrative measures.
These sources said that Islamabad was committed to reduce the deficit financing of the budget from 7.4 per cent currently to 3.4 percent over the stipulated loan-program period (2008-12), and the repayment period (20012-15).
They added that the IMF-Islamabad agreement grants for the dual policy of implementation of this program by reducing the government expenditure maximum by 20 per cent and the tax increase by 10 per cent.
Whereas, the development budget would either be cut down by 50 per cent (Rs 256 billion) or supported through increase in tolls and other provincially implemented measures.
These tough conditions would have to be implemented not because Islamabad would not be allowed to use the bailout money for meeting its development requirements but only for meeting the foreign currency related budget deficit.