PROGRESS WITH STRUCTURAL REFORMS

25. Progress with structural reforms has been mixed, with progress in key areas lackluster. On the

positive side, the automatic fuel price adjustment mechanism, which was re-introduced in early 2009, has

been operating and domestic prices of fuel products have been adjusted monthly consistent with the

changes in import parity price. Also, the pilot of the Benazir Income Support Program (BISP) with the

new targeting instrument—the poverty scorecard—has been conducted and a full roll-out of the new

targeting methodology is expected to start next, albeit with a substantial delay due to capacity constraints.

Steps to strengthen government’s debt management have also been taken.

26. However, progress with revenue reforms in the past months, owing to resistance from vested

interests and lack of political will, has been weak, as demonstrated by declining tax revenues as a share of

GDP. As part of the 2009/10 budget, government was to adopt significant legal changes to the current

General Sales Tax (GST), moving it closer to VAT by minimizing exemptions and zero-ratings, and

thereby broadening tax base and revenues. However, this did not happen. Further, the long-due

restructuring of FBR, which was launched at the beginning of 2009, was reversed in May owing to a

court case by the customs group, which opposed the reform. After a delay, the restructuring process was

re-launched in July and expected to be completed by end-September 2009.

27. Reforms to strengthen financial sustainability of the electricity sector have stalled. The authorities

had committed to raise electricity tariffs and introduce monthly and quarterly tariff adjustment

mechanisms so as to eliminate tariff differential subsidies by end-June 2009.