ISLAMABAD - An endorsement of Pakistan's economic stabilization package by International Monetary Fund will almost certainly lead to more taxes and a further interest rate hike, at a time when the government is already doing away subsidies on oil and electricity. The IMF issues a Letter of Comfort for donor agencies to give programme loans. In its Macroeconomic Assessment Letter, which it gave to an international financial institution for the release of a loan just a couple of months back, it had said that to curtail budget deficit, Pakistan needed to broaden the tax base by "eliminating some tax exemptions". It sought continuation in increase in the prices of petroleum products and electricity to restrict budget deficit at 4.7 per cent of the total size of the economy. Cash-strapped Pakistan, which has started negotiations with the Fund in Abu Dhabi, is again looking for a Letter of Comfort from the Fund for the release of loans from the international financial institutions. Both the parties are meeting under Article-IV of the Fund, a technical paper that states performance of the economy according to the IMF perspective. The government is expecting to obtain US $ 3 to 4 billion from the international lenders if the Fund writes "Pakistan policies are on right directions", said a Finance Ministry official who was proceeding to Dubai on Tuesday.   Terming 13 per cent interest rate "insufficient", the IMF had further recommended an "increase in interest rates... to stem reserve losses and eliminate central bank financing of the government... Interest rates should be allowed to rise as needed to lower inflation and ensure that the domestic financing of the (budget) deficit is covered entirely by commercial banks and non-bank sources". A source on one of international financial institutions on condition of anonymity told TheNation that the IFIs were seeking an immediate interest rate hike of 200 basis points or two per cent, as the real interest rate in Pakistan was negative 12 per cent. The inflation in Pakistan is 25 per cent and the interest rate is 13 per cent. The economists recommend that real interest rate should be more than the rate of inflation in order to give better returns to the depositors.   A key official of the Finance Ministry told TheNation that the government was expecting similar "treatment" from the IMF, which it met while issuing the earlier letter. He said Pakistan would present a two-pronged strategy - A Macroeconomic Stabilization and Medium Term Structural Transformation Programme. The government would convince the Fund that it had all what was needed for to bring economy back on track. The short-term strategy includes pass through of oil and electricity subsidies to the end consumers, to expand safety net for 7 million households to reduce the impact of price hike, fast track privatization, issuance of Global Depository Receipts and world financial assistance to shore up foreign exchange reserves and keep budget deficit at 4.7 per cent of GDP by all means. The medium-term strategy is to strengthen the financial sector through more independent State Bank and economic transformation with value-addition in manufacturing and better performance of agriculture sector with services sector backing to provide finance and logistics. The official said whether or not Pakistan opted for the IMF programme, it would have to agree on certain conditionalities to get the dollars required to overcome the Balance of Payments problem.     Former Chairman Federal Board of Revenue, Abdullah Yousuf, said Capital Gains Taxes on stock market and property (real estate) were the two major exemptions that the government had awarded. However, he said the current capital loss in the stock market, which was also a global phenomenon, would make the condition unfavourable for withdrawing the exemption. Abdullah Yousuf said the issue of tax on agriculture sector was again a provincial subject and the federal government had little to do with it until and unless an amendment in the constitution took place. "There is an issue of compliance as opposed to exemptions because of black economy", he added. He said the real issues were proper documentation of the economy and proper valuation of the property and the resolution of both these issues could resolve the government's financial problems to a larger extent. State Bank of Pakistan's Chief Spokesman, Syed Wasimuddin, when asked about the bank strategy on taking policy measures to control price hike and minimize the difference in nominal and real interest rate, replied, "SBP has announced this year more than frequently appropriate policy responses to the emerging challenges to the economy and banking system and remains committed to fighting inflation".