IMF holds back cash to Pakistan: Asia Times

By Syed Fazl-e-Haider

KARACHI - The International Monetary Fund (IMF) has deferred for an indefinite period disbursement of the fifth, US$1.2 billion, installment of funds to be paid to Pakistan under their $11.3 billion standby agreement. This came after the government failed to meet the condition of tabling draft value-added tax (VAT) legislation in the four provincial assemblies.

Critics say the proposed VAT will increase inflation, erode consumers' purchasing power and dampen demand. The government has left the issue with legislators who will adopt, reject or amend the VAT bill. Local business communities have strongly opposed the imposition of VAT, saying it will harm every sector of the economy. However, the rupee "will come under pressure if the IMF money is delayed for more than a month", The News quoted Sayem Ali, an economist at Standard Chartered Bank, as saying. That would drive up the cost of imports.

The Washington-based IMF has postponed its scheduled March 31 executive board meeting, which was to review Pakistan's economy and approve payment of the fifth tranche.

The legislative bottleneck is the presentation of a draft law on VAT to the Punjab assembly, according to Dawn. The government has already submitted the draft law to the National Assembly and to the provincial assemblies of Sindh, North-West Frontier Province and Balochistan.

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