KARACHI - Pakistan has expressed hope that the fifth review of the progress on Pakistan economy by IMF under the Stand-By Arrangement Program would be completed later this year as the government is working hard to implement those macroeconomic reforms and policies, agreed with the Fund in the last letter of intent sent to it in May 2010. It has further indicated that in the aftermath of the recent heavy flooding in the country, the current macroeconomic framework will be re-evaluated once the damage assessment has been completed, and a revised budget will be submitted for approval to the cabinet and presented to the standing committees on finance and revenue of the National Assembly and the Senate of Pakistan. According to recent policy, intention document known as memorandum of intent sent by Pakistans economic authorities to IMF after having discussions with the Fund to evaluate the budgetary and economic impact of the floods, the government is planning to adopt the measures to cap the fiscal deficit at 4 percent of GDP as it was targeted before the impact of the floods. The document said the cost of emergency operations and the reconstruction that lies ahead will compel us to adapt our fiscal framework to boost budgetary resources and enable the government to address the emergency, improve service delivery to the population and increase public investment to raise growth. We will, therefore, shift resources from non-priority current and development spending to relief and reconstruction spending. We will also introduce a temporary 10 percent income tax surcharge. Despite these efforts, there is no doubt that the massive spending needs and the revenue shortfall that are being caused by the floods will push the deficit above 4 percent of GDP. Given the limitations on domestic resources, additional external financing is urgently needed, preferably in the form of budgetary grants, it said. It revealed that SBP is taking steps to limit the damage to the economy and the financial sector. It is working closely with banks to facilitate the flow of credit and also with international development agencies to expand and redirect the existing financing facilities to small and medium-size enterprises and microfinance projects in the areas hit by the floods. And, to make sure Pakistans international trade and financial relations continue to function normally, we will not impose any restrictions on the making of payments and trans fers for current international transactions nor introduce any trade restrictions or enter into any bilateral payment agreements that are inconsistent with Article VIII of the Funds Articles of Agreement, it added. We are well-responded to floods, and we will continue to cooperate closely with the Fund in the context of our SBA, both to provide support for our reform efforts and help provide a consistent economic and financial framework in the challenging period ahead. Specifically, the existing GST will be transformed through the introduction of a reformed GST capturing the features of a VAT, enabling us to start raising the tax revenues required for sustainable growth. We also remain committed to reform the electricity sector in order to eliminate tariff differential subsidies and resolve circular debt, and to address the quasi-fiscal implications of commodity credit, the document mentioned. It projected that the GDP growth would be 21/2-3 percent this year, about 13/4 percentage points lower than would have been possible without the floods while the average annual inflation rate is expected to increase from 11.7 percent to 131/2 percent this year. It pointed out that there is significant damage to cotton, rice, and sugarcane crops as well as livestock. This will hurt our export performance, especially in the textile sector, and will lower domestic demand in other sectors. Furthermore, the damage to crops and the disruption of supply chains in rural areas will inevitably lead to higher inflation for food and other items. Additional demand for building material, medicine, and social services will also contribute to price pressures, it said.