KARACHI (Reuters) - MQM Party Pakistan said Friday he will join the ruling coalition, restore its parliamentary majority, after the Government has put off the coast of reforms demanded by the Fund currency International (IMF).
Reforms, including increased fuel prices and a sales tax, are part of a programme agreed in exchange for a loan from IMF 11 billion and the delay is likely infuriate the IMF and Western Allied consternation of nuclear-armed Pakistan.
Investors would also appalled, said analysts.
The Muttahida Qaumi Movement (MQM), the second more great party of the coalition, defected from the opposition on January 2, defrauding the Government, an ally of the strategic U.S., in its majority, causing a political crisis, and raising the prospect of the elections.
"MQM in a goodwill gesture, for the promotion of democracy and the critical condition of the country will still sit on the benches of the Conseil du Trésor," Raza Haroon, a leader in the upper part, has told reporters that he was with the Prime Minister Yusuf Raza Gilani.
But Haroon said that MQM would not immediately join the federal cabinet, indicating the party was concessions.
The MQM, which dominates the financial capital Karachi, cited an increase in fuel prices another year as the main reason of his defection.
Thursday, the Government set aside rising fuel prices, prompting criticism both the IMF and US Secretary of State Hillary Clinton.
In another blow for economic reform program, Gilani said Friday a reformed General sales tax (RGST) would be put off until a political consensus could be reached.
"We've postponed...". It will not proceed until that consensus was evolved, "said."
MQM had strongly opposed tax, calling it regressive.
Government, faced with a growing budget deficit, has a deplorable record on revenue collection. Pakistan has a ratio of domestic product of gross tax (GDP) by about 10 per cent, one of the lowest in the world.
A ROCK AND A HARD PLACE
IMF wants more budget discipline of the Government through painful measures such as sales tax, a requirement for final two payments of the loan, worth over 3 billion dollars and spread over nine months through September 30.
IMF officials were unavailable for comment on the decision to delay the sales tax, but on Thursday the IMF both in the United States has criticized decision to rollback the fuel price increases.
"We said clearly, as to a meeting with the Ambassador, we believe it is a mistake to reverse advances that are made to provide a stronger economic basis to Pakistan," US Secretary of State Hillary Clinton said at a press conference.
Cancellation of fuel 9%, price increases will result in Government will fill the difference when prices increase, increase its spending and expand its budget deficit by as much as 0.2 to 0.3 percentage points of GDP in fiscal year 2010-2011, analysts estimated.
The reversal of the price increase would cost the Government about 5 billion rupees ($58 million) per month, said a senior official of the Ministry of oil.
Combined with the delay in implementing the new reformed sales tax analysts, said that the goal of deficit of 4.7% of GDP for the year would be almost impossible to achieve.
According to official sources, for the six months ending December 31, the deficit amounted to a provisional 2.6% of GDP.
In the past, the IMF granted waivers to Pakistan for overflow deficit targets and can do the same again in order to avoid more destabilize the major Western ally which is essential to efforts to bring stability in nearby Afghanistan.
But financial market analysts were shocked by the decisions of the Government.
"It sends a very negative signal for lenders and investors that implementing reform does will not happen," said Asif Qureshi, Director of Invisor Securities Ltd.
"Rather than the provision of repair of the so-called ordinary man, he ends by will become an additional cost to them." The economic consequences of not implementing reforms will be huge. »
(Other reports by Zeeshan Haider and Anthony Augustine in Islamabad and Karachi; Sahar Ahmed) (Editing by Chris Allbritton and Robert Birsel)
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