IT can be a bit of a chicken and egg type of problem, but it is the one question around which all IMF programmes that Pakistan has signed have been built: what is the source of the country`s macroeconomic malfunction? Some argue that it is the country`s inability to accumulate any reserves which keeps depleting the treasury and sends us back to the IMF with monotonous regularity. But others argue that the fundamental problem is fiscal an inability to raise revenues that can match expendituresand persistent deficits are the biggest threat to stability because in the long run they can only be covered by printing money which debases the value of the currency, causing inflation and devaluation.

Another argument says the problem is structural. Large fiscal deficits are inevitable when the state is heavily involved in functions that don`t belong to it, like running businesses and setting prices. Therefore, to cut deficits in a meaningful way it is necessary to extricate the state from these entanglements, which means privatisation on the one hand andletting markets set prices on the other.

These are the three ingredients of a reform agenda that Pakistan has been struggling with for decades now.

The emphasis can change, butit is always some combination of these three ingredients that goes into the making of an IMF programme.

The present programme emphasises reserve accumulation as the number one priority, but has ambitious tar-gets in the fiscal and structural side as well. For the current fiscal year, for example, the government is expected to increase its revenue collection by about 600 billion rupees from last year, when it fell to abysmal levels.

This is a 20 per cent increase in revenues from last year, which is quite high. By contrast, the same target in the facility that Pakistan signed in 2000 was 16 per cent, after one revision, and that was described by the IMF as `appropriately ambitious` at the time, when a massive tax survey and `documentation drive` was beingcarried out by the military government.

Almost half of this increase is expected to come from the hike in GST rate and a similar hike in the gas surcharge, with the rest coming from federal excise taxes, customs duties and `non-tax revenue` CAPPING EXPENDITURE: Expenditures for their part are largely capped at last year`s level, with a nominal 62bn rupee increase.

Subsidies, which have grown at a stupendous rate of more than100 percentin the three years between 2009 and 2012, will now have to be brought down by 53bn rupees. This means applying the brakes on this runaway expenditure head, followed by a reversal something that will only be possible with increases in the power tariff.

The government is counting on privatisation proceeds, auction of 3G licences and Coalition Support Funds (CSF) reimbursements to help shore up its revenue numbers, and some have voiced scepticism about whether and how much money will materialise fromthese actions.

The CSF funds are in the pipeline, says Elissa Smith, spokesman for the Department of Defence here in Washington. Congress has been notified of the reimbursement, which covers operations for the period July September 2012. `We expect to execute the reimbursement soon` says the spokesman.

But other expected revenue sources are not inspiring much confidence. The 3G auction is looking difficult to arrange under the circumstances, when the minister in charge is more interested inmoral policing of the telecom sector rather than laying the groundwork for an exercise expected to bring in $1.2bn.

Likewise with privatisation proceeds. The government has committed to privatising 31 state-owned enterprises over the next three years, starting with a divestment of 26 per cent shares of PIA to a strategic investor by June 2014. But it`s hard to see how far this divestment will go to plug a Rs 88bn expectation in the programme, considering the carrier`s accumulated losses have risen to Rs 170bn as of August.Finance minister Ishaq Dar insisted at all forums while in Washington that his government had the resolve and ownership of the programme at the highest levels.

He laid emphasis on the documentation drive, which has been marked by some reversals lately.

The programme is scheduled to be reviewed at the end of December. Speaking on record at the annual meetings, Jeffrey Franks, the Divisional Advisor overseeing implementation of Pakistan`s programme, said the review would `probably go well`.