Over the past several days, a Pakistani delegation led by its Finance Minister Dr Abdul Hafeez Sheikh and an IMF mission have, reportedly, held constructive discussions on Pakistans stabilisation programme, focusing on macroeconomic policies for the remaining six weeks of fiscal year2010-11 and the budget for 2011-12. The discussions took place in Dubai. The Pakistani authorities are said to have expressed their strong resolve to pursue prudent macroeconomic policies and enhance the countrys medium-term growth prospects. The 11-day inconclusive talks between the Pakistani delegation and the IMF have forced the federal government to postpone the budget presentation on May 28. It is expected that it will now be presented on June 3. During this period, the government would be able to firm up its figure of fiscal deficit for the current year. The disagreement over figures is said to be largely responsible for the breakdown in talks. During the talks, the Pakistani delegation received a set of milestones from the IMF, which boil down to containing inflation through tighter control over the budget deficit, elimination of all subsidies, expenditure restraint, enlargement of tax base, documentation of the economy, autonomy for the State Bank and NEPRA, substantial improvement in governance specially in the power sector and reduction in public debt. The IMF laid a great deal of emphasis on the governments recognition that the countrys economy faces important challenges. Economic growth has been negatively affected by the floods and the high price of oil. Inflation remains persistently high, and budgetary problems are undermining macroeconomic stability. The mission welcomed the recent strengthening of the external position and some of the tax measures announced in March, which represent an important milestone. The discussions centred on measures to reduce the budget deficit in 2011-12 as well as quasi-fiscal operations (for example, the procurement of agricultural commodities) to reduce inflation, assure fiscal sustainability, and protect the external position. Reducing the budget deficit will require higher revenue through tax reforms to broaden the tax base, including steps to implement reforms in the general sales tax. Measures to reduce spending on general subsidies in the energy sector have begun to be implemented. The quality of expenditure could be improved by increasing the share of spending on health, education and infrastructure. Continued efforts are needed to reduce the budget deficit to take the pressure off the monetary policy and create space for more credit to the private sector. In addition, as government debt has increased, debt management needs to be improved. It is not known if the Finance Minister will be able to fully provide for all items on the IMF work to do list. He cannot control the defence expenditure. Meanwhile, debt servicing obligations have to be met. There is no leverage available with the government, which could impel the provinces to generate additional revenues. Dr Sheikh is known to be an able and competent man, but he lacks the political clout within his party and Parliament. While there is not much that he can do to provide relief to the common man, for starters he could eliminate exemptions that the idle rich class has been enjoying. There is no good reason why real estate transfers should not be adequately taxed or capital gains tax on stocks and shares should not be levied. Income from whatever source accruing must be taxed. Lower imports, lower development spending, and an explosion of unproductive recurrent spending for subsidies adds to the miseries of the ordinary Pakistanis. Ms Fauzia Wahab, Chairperson of National Assemblys Standing Committee on Finance, Revenue and Economic Affairs, is not to be trifled with easily. She had earlier declared that Raymond Davis enjoyed full diplomatic immunity and could not be proceeded against in a Pakistani court. She has now declared that there will be no increase in the salary of government servants. Also, civil pensioners should not expect any relief from the forthcoming budget. She has further declared that the government would also eliminate sales tax exemptions on imports and local supply of defence stores apart from other exempted defence items. These statements would have inspired greater confidence if the Finance Minister had made them. According to senior officials in the FBR, the government was contemplating to withdraw the zero-rating facility on five major export-oriented sectors, including textiles, carpets, leather, sporting goods and surgical items. There is general consensus among planners and economists that the best mechanism to sustain growth is to ensure effective governance. The past record of President Zardaris government in this vital area has been pathetic. However, efforts are now on to overhaul the state-owned enterprises and to ensure transparency in the conduct of business. The local governments have completely failed to mobilise resources and are entirely dependent on grants from the provincial governments. This dependency must cease. Inflation must be contained. For this to happen, a very determined effort must be made to keep the budget deficit within the limits agreed with the IMF. The alternatives are too frightening to contemplate. n The writer is a member of the former Civil Service of Pakistan. Email: shakeelahmad941@yahoo.com