ISLAMABAD: Welcoming wider political engagements on economic policies, the International Monetary Fund (IMF) has set three pre-conditions for tangible progress on its $11.3 billion standby programme with Pakistan that practically stands suspended since May 2010.

To overcome this challenge, the IMF has asked Pakistan leadership “to move quickly on both sides of the budget to increase revenues and contain expenditures”.

The government had started on introduction of the broad- based general sales tax or value added tax two years ago and had done a lot of preparations. The IMF believed it was a good tax measure proposed by the government, which should be implemented without further delay.

And given the additional role of the provinces in the aftermath of 18th constitutional amendment, the IMF wants provincial governments to show more fiscal responsibility. In this regard, the IMF delegation would hold a meeting with Chief Minister Punjab Shahbaz Sharif and former finance minister Ishaq Dar on Tuesday to touch the base on their support for the overall economic reforms and provincial finances.

“The efforts that have already started to build a cross-party consensus on fiscal and economic reforms are very positive and we would be happy to support authorities (in that process) and share our analysis with all stakeholders, Masood Ahmed, IMF's director for Middle East and Central Asia told Dawn in an exclusive discussion.

After daylong interactions with President Asif Ali Zardari, Prime Minister Yousuf Raza Gilani and the government's economic team led by Finance Minister Dr Hafeez Shaikh, Mr Ahmed said it was not for the first time or something new in Pakistan that IMF was contacting the political parties.

The IMF has appreciated challenging times across the world as well as in Pakistan because of big external shocks like floods that affected revenue and expenditures but has expressed its concern that measures projected on the revenue side 'have not borne fruit'.

The IMF is also worried about rising expenditure, particularly subsidies and commodity expenditures that are eating up public finances.

The financing of a large fiscal deficit was leading the government to rely on local banks and the State Bank a move triggering inflation and squeezing both the public and private sector and raising rate of interest, according to the IMF.

Asked about the prospects of disbursement of IMF loan in the near future, the sources said the key to such discussions was not to have economic and fiscal measures in two months or so but for two years and a half from now, which should provide the basis for sustainable public finance and higher growth rates.

“The disbursements would depend on how quickly these measures come about”. Also, the IMF wants that the authorities to take steps for long-term tax measures like RGST to increase tax base supported by temporary taxes like flood tax and better coverage of income tax.

The Fund believed that Pakistan should take steps to increase economic growth rate and contain rising rate of inflation as the two factors were really hurting the common man.

In its initial round of discussions, the political leadership is reported to have shown their willingness to move ahead with economic reforms but the IMF believed the 'recognition (for economic reforms) could not be substitute to real action on ground.

Good intentions alone are not enough to meet requirements of the economy and the Fund would like to see budget framework for the next year which should provide sustainable roadmap to reduce fiscal gap and a set of actions to address structural weaknesses.

The IMF mission is reported to have told the authorities that delaying or reversing a trend to pass on oil and electricity prices to consumers was adding to the size of the fiscal deficit. In the process, these subsidies were benefiting only the rich, seen by the IMF as a wasteful use of public money.

The IMF, said these sources, was strongly opposed to an upward revision in fiscal deficit target as the original target was enhanced from 4 per cent to 4.7 per cent of GDP because of additional pressure of floods but there has been no such external shock since then.

The IMF mission would stay in Islamabad until Wednesday to get a clear feedback from Pakistan authorities.