IMF says Pakistan must focus on tax reform

TOKYO :Pakistan must focus on reforming its tax system and lowering inflation to restore its economy, but political instability is a key risk to growth, the International Monetary Fund said on Thursday ahead of a donors conference.
Allies of cash-strapped Pakistan meet in Tokyo on Friday to pledge aid and seek assurances that it will implement economic reforms and take more urgent action against an increasingly formidable insurgency.While Pakistan's economic policies are on the right track, the global economy has worsened and the domestic political environment is a risk, said Adnan Mazarei, IMF assistant director for the Middle East and Central Asia department."I would be remiss if I did not mention that a key risk to Pakistan is political," Mazarei, mission chief for Pakistan, told Reuters in an interview."The private investors and the financial market players that we often ask, they point to political uncertainty as a key factor."The international community is worried an economic meltdown in Pakistan, which narrowly averted a balance of payments crisis last year with a $7.6 billion IMF loan, could fan popular support for al Qaeda and other militant groups.Pakistan hopes Friday's meeting of donors -- including Japan, the United States and the European Union -- will pledge $4 billion to fund efforts on poverty alleviation, education and health.Mazarei said Pakistan needed to focus on controlling its budget in the near-term, by starting tax reforms and making sure revenues are secured so authorities could then focus on longer-term issues such as reducing poverty."It is critical that this revenue problem is addressed, with two lines under the word 'critical'," he said."Otherwise, the social services that are needed will not be provided, the public investment that is needed will not be provided."He added that Pakistan's inflation, which has eased from a record high of 25.3 percent in August to 19.07 percent in March, was still stubbornly high, but added that its external reserve position had improved and its exchange rate had stabilised.In a gathering ahead of the donors meeting on Friday, Pakistan is expected to assure its allies of its commitment to tackling economic and security problems.Pakistan, in the Friends of Pakistan ministerial meeting, is also expected to present a prioritised wish-list of projects it has drawn up worth $30 billion, which it wants to see implemented over the next 10 years.
The projects include hydro-electric dams, roads, and projects aimed at improving security in its violence-plagued northwest on the Afghan border.A UN official hoped the talks on Friday would lead to a longer-term dialogue to support socio-economic development."The Friends of Pakistan will show, through their pledges, that they are ready to stand by Pakistan in its development process, that Pakistan is not alone in its struggle," Fikret Akcura, the Resident Representative for the United Nations Development Programme in Pakistan, told Reuters in an interview."And hopefully this commitment will continue, that it's not short-term effort."