Zardari visits UAE to find answer to Pak's economic problems

Zardari visits UAE to find answer to Pak's economic problems

Zardari visited Dubai for a couple of hours a few days ago to seek the intervention of the UAE's leadership for the payment of USD 800 million that telecom major Etisalat owes to Pakistan for the country's largest privatisation transaction on the Pakistan Telecommunication Company Limited, the Dawn newspaper reported today.

Etisalat has held back the payment of about USD 800 million out of the USD 2.8 billion proceeds from PTCL's privatisation for about four years because of a dispute with the Pakistan government over legal transfer of land and property titles. The government sold about 26 per cent stake and management control of PTCL in July 2005.

"The entire amount is expected within a few days," an unnamed official was quoted as saying. The dispute between the government and Etisalat over the delay in transfer of some land titles to PTCL in Sindh province has been resolved, the official said.

The government is hopeful that this breakthrough, along with two other steps – a plan to raise another USD 1 billion from the sale of assets and about Rs 46 billion from new tax measures in the current fiscal – will strengthen Pakistan's case before the International Monetary Fund.

Pakistan put on hold its talks with the IMF, which were tentatively scheduled for this week in Dubai, to finalise these three measures before seeking the revival of the IMF's programme.

Apart from the money it is hoping Etisalat will pay, the government plans to raise about one billion dollars through a combination of international and domestic divestment of government shares in state-owned entities like Oil and Gas Development Company Limited, Islamabad Electric Supply Company and Habib Bank Limited.

The third step, which might be the most controversial politically, is additional taxation.

Federal Board of Revenue Chairman Salman Siddique told the Senate's Standing Committee on Finance on Wednesday that the government has prepared new revenue measures worth Rs 46 billion to put the IMF programme back on track. He said the revenue target for the current fiscal has been increased to Rs 1,630 billion.

The devastating floods last year had compelled the government to reduce the target to Rs 1,604 billion. Siddique said the new measures included the revenue the government planned to collect from a 15 per cent flood surcharge on withholding tax and an advance income tax.

Imposed from April 1, both measures are estimated to yield Rs 27 billion. Another Rs 9 billion is expected to be generated through a hike in the special excise duty on imports while Rs 5 billion each will be generated by broadening the tax base and recovery of arrears, he said.

Through various measures, the government expects to contain the current year's fiscal deficit at about five per cent of GDP against the revised IMF target of 4.7 per cent. The fiscal deficit was earlier estimated to reach 8.4 per cent.

However, these drastic measures are a bitter pill the authorities and people have to swallow as multilateral lenders have stifled the flow of about USD 500 million each from the World Bank, Asian Development Bank and Islamic Development Bank that were part of a three-year budgetary support programme for Pakistan.

All three institutions want Pakistan to secure a "letter of comfort" from the IMF before they resume financing, the report said. IMF inflows have been suspended since May because of non-implementation of revenue mobilisation measures, including a reformed general sales tax regime.

US lawmakers have also said that crucial civil and military aid could be cut over the continued detention in Pakistan of American national Raymond Davis, arrested in Lahore last month after he shot and killed two armed men he claimed were trying to rob him. The incident has triggered a tense stand-off between Pakistan and the US.