IMF assured Pakistan will not seek debt write-off

Pakistan gives guarantee to the International Monetary Fund that it will keep paying back loans and interest charges.

ISLAMABAD: Pakistan has given a guarantee to the International Monetary Fund (IMF) that it will keep paying back loans and interest charges, putting at rest speculation that the government is seeking debt write-offs and rescheduling after floods ravaged the country.

The need for assurance arose after a debate erupted on whether Pakistan should seek debt moratorium in the wake of the floods which have strained its limited resources.

The guarantee was given in a policy letter, submitted on September 10 and signed by State Bank Governor Shahid Hafiz Kardar and Finance Minister Dr Abdul Hafeez Shaikh.

The policy note was written for the sake of receiving a $450 million emergency assistance, which the Executive Board of the Fund approved on Wednesday for a period of three years.

The government further committed that it would not enter into any bilateral agreement with any country to get the loans rescheduled or written off.

“To make sure Pakistan’s international trade and financial relations continue to function normally, we will not impose any restrictions on payments and transfers for current international transactions nor introduce any trade restrictions or enter into any bilateral payment agreements that are inconsistent with Article VIII of the Fund’s Articles of Agreement,” the policy note, known as the letter of intent, stated.

“This is good news and the government has taken a right decision to brush aside the impression that it wants to stop debt repayments,” said Dr Ashfaque Hasan Khan, former director general debt of the Ministry of Finance.

During the current fiscal year, the government will return foreign loans of Rs174.4 billion or $2 billon and make interest payments of Rs76.8 billion or $893 million. Independent economic experts have been advising against seeking loan write-offs or rescheduling. They are of the view that instead of a foreign debt moratorium the government should consider rescheduling domestic debt as only on this account it will be spending Rs621.8 billion or $7.2 billion. This amount is double of what Pakistan earns from exports to Europe.

Assuring uninterrupted imports, the government told the IMF that even at the time of balance of payments crisis the government had not imposed any restriction on imports.

However, the government admitted that the economic situation was deteriorating much before the floods, a fact it had been hesitant to admit before its citizens. “Even before the floods, our economic circumstances were far from easy,” the policy note said.

It also assured the IMF that the federal and provincial governments would revisit their budgets. The government is planning to slash development spending and cut subsidies to spare money for the reconstruction of flood-hit areas. It also desires to levy a 10 per cent flood surcharge on all incomes above Rs300,000 per annum.

Published in The Express Tribune, September 18^th, 2010.