ISLAMABAD - Pakistan Friday refused to accept tough conditions of International Monetary Fund (IMF) for a new loan agreement which included imposition of new taxes and increase in interest rate.

Sources said that policy level dialogue between Pakistan and IMF was held on Friday wherein Islamabad made it clear that it would not accept any harsh condition for fresh loan programme. The talks would continue for two to three days to discuss the terms and conditions.

IMF showed concerns over the reduction in discount rate and higher revenue collection target for next financial year 2013-2014. Pakistani economic team informed the IMF team that government would achieve the revenue collection target with Rs207 billion revenue generation measures and there would be no need to impose new taxes.

The Fund press government for increasing the interest rate. IMF also asked the government to eliminate the tax exemptions given to various sector. Similarly, they asked to gradually withdraw the power subsidies and to control the line losses to control budget deficit.

Sources said that government seeks a loan package of three to five billion dollars from IMF, as country would repay over three billion dollars to the Fund in next financial year 2013-2014. The government fears the talks could collapse as apart from other ‘unacceptable’ harsh terms, the IMF might ask for reformed general sales tax (RGST) and increase in power tariff. Therefore, government has devised a Plan B, which envisages generating additional resources to build foreign exchange reserves.

According to this alternative plan, the government would require seek help from friendly countries. It would send a team to United States for talks regarding reimbursement of due amount under coalition support programme (CSF). Another team would be sent to Middle Eastern states to seek oil purchase on deferred payment.

The government would also focus on auctioning 3G licenses, $800 million due amount from Etisalat against privatisation of Pakistan Telecommunication Company Limited (PTCL), as all these are budgeted for the next financial year 2013-2014.

Pakistan’s foreign-exchange reserves slid over 40 percent to $6.24 billion in June from a year earlier, enough to cover about two months of imports, central bank data show.

The plunge has weighed on the rupee and adds to other challenges facing the recently elected government of Prime Minister Nawaz Sharif, such as energy shortages and a Taliban insurgency in the northwest.

Jeffrey Franks, the head of the IMF’s Pakistan mission, said in January that the lender won’t sign a new loan program without a “deep and clear” commitment on a set of policy reforms to curb the budget deficit. Pakistan’s Finance Minister Ishaq Dar in his June 12 budget speech pledged to narrow the widest fiscal deficit in over two decades and to spur expansion in an economy he said was “shattered.” He imposed additional levies, such as a sales-tax increase to 17 percent from 16 percent, to help achieve a deficit of 6.3 percent of gross domestic product in the year starting July 1, compared with 8.8 percent in 2012-2013.

“We have already taken steps for reforms,” he said in the interview on Tuesday after attending an investment conference in Dubai.