Financial Risk Manager: Monthly Review

Monthly Review - January 2009
Saturday, January 24, 2009

Doubt about Pakistan's ability to meet IMF targets remains due to following indications;

The government will miss an ambitious tax collection target of PRs1.4trn for 2008/09.
The government to secure a level of zero borrowing for the first nine months of 2008/09, which seems highly unlikely to be achieved.
The tax collection target for the first half of 2008/09 was PRs515bn. However, the indications are that the government may not have raised much more than PRs400bn during that period, despite high rates of inflation that should have boosted the collection of various sales taxes.
With expenditure rising more rapidly than revenue collection, it seems highly unlikely that the government will meet the IMF target of a 4.2% fiscal deficit in 2008/09 (the deficit stood at an estimated 6.8% in 2007/08).

If, as seems likely, the government misses its targets, three options will arise.

The first would be for the government to renegotiate the deal with the IMF. This would lead to tighter conditions and a consequent reduction in the economic policy options available to the government.

The second option would be for the government to raise existing taxes or to introduce new ones. Given the economic downturn and the risk that tax increases would exacerbate inflationary pressures (which, although decreasing, are still strong), this is another unpalatable option. Nevertheless, there are indications that the government is considering ending tax exemptions on food and medicines.

The third option would be for the IMF to grant Pakistan a waiver. It appears that the IMF!s stand-by facility assumes a relatively high oil price, which would have a positive effect on government taxes on petroleum and related products. This could provide a pretext for allowing Pakistan to miss its targets so early in the package. The second installment of the stand-by arrangement is due in March. Successive governments have attempted to increase levels of tax compliance, but these have had little long-term impact

Ref: Economist Intelligence Unit

Labels: Economy and Business, Pakistan Economy

posted @ 1:51 PM,

At January 25, 2009 at 8:48 AM, Anonymous said...: Unless we change ourselves Allah will not change what ever is happening in Pakistan. We will always witness that only curropt people rule us because it is directly related to an individuals honesty. So, if in Pakistan people at large are dihonest none of us should expect that we will have honest leaders.
At January 25, 2009 at 1:39 PM, mena said...: as long as Current Pakistan peoples party (far away from the bhutto's party) stays in pakistan not only in government pakistan will never progress, currently people pakistan is slowly slowly rusting the whole pakistan internally and externally
At January 26, 2009 at 1:53 PM, Mubeshir said...: Apart from all these things i am of the believer that we should't loose the grip the hope. Inshallah we would get right people who will lead us, however we have to do something good for our country first.
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