Economic woes: Fresh IMF loan linked to tough conditions

Published: April 20, 2011
The move puts cash-starved Pakistan in an awkward position.

The move puts cash-starved Pakistan in an awkward position.


The International Monetary Fund (IMF) is unlikely to sanction a second loan programme for cash-starved Pakistan without upfront implementation of the tough conditions that were not the hallmark of the $11.3 billion bailout package.

The move, which underscores the IMF’s growing mistrust in Pakistan, puts Islamabad in an awkward position amidst an ailing economy and looming political instability.

Background interviews with government officials reveal that the IMF has linked the followup loan programme with the prior implementation of unpopular decisions after it found Islamabad breaching confidence time and again.

The size of the second programme might be between $3 and $5 billion and prior implementation of a couple of conditions may result in rescheduling of the repayments of loans obtained under the standby arrangement.

According to the original schedule, repayment will start next year. The duration of the next programme may be up to four years with stringent quarterly reviews.

This time, the officials said, Pakistan would not qualify for standby arrangement. The government may apply for the poverty reduction and growth facility, which is aimed at  policies that are clearly focused on economic growth and poverty reduction and consistently implemented.

On the contrary, the standby arrangement enabled Islamabad to get $3.1 billion first tranche in November 2009 without implementing tough actions. However, when the time came for taking difficult and politically unpopular decisions the government went back on its commitments, resulting in the suspension of the programme.

Pakistan is seeking another programme to pay back the debt it has obtained under the standby arrangement and to seek budgetary support from other lenders who have also sought an IMF certificate in the wake of the haphazard approach of the country’s economic managers.

The economic team, led by Finance Minister Abdul Hafeez Shaikh, held talks with the IMF on the fringes of spring meetings of the World Bank and the IMF. However, the talks could not make any headway after the IMF refused to show flexibility. There was also disagreement on the restoration of the suspended programme and a common way to bridge it with a new one.

Officials said that the next loan programme, if approved by the IMF, may likely to revolve around the conditions of restructuring of the public sector enterprises that includes shedding the workforce – a condition that may put the PPP-led coalition government in an awkward situation ahead of the general elections scheduled for 2013.

Under the condition of the financial improvement plan of PSEs, the IMF would like Islamabad to reform the Pakistan International Airlines, Pakistan Railways, Pakistan Steel Mills, Pakistan Electric Power Company, Trading Corporation of Pakistan and Pakistan Agriculture Storage and Supply Corporation.

A finance ministry official, who had worked with former prime minister Shaukat Aziz, said that the government had then prematurely concluded the PRGF as the vested groups opposed privatisation of power and oil sectors. This condition, he said, may again be added to the next programme.

Officials said the IMF would again press the government to go ahead with full implementation of the reformed general sales tax (RGST) regime before seeking the followup programme.

In a recent programme note, the IMF had indirectly criticised the performance of Dr Hafeez Shaikh, saying that the government carried out reforms in 2008-09 but reversed the gains in 2010-2011.

The US government is also pressing Islamabad to implement structural reforms. In a recent meeting between Pakistan and the US Treasury Department Washington said, “Major structural reforms, including the energy sector, remain necessary to help create the conditions for strong growth and employment creation”.

Officials said the IMF may ask Islamabad to give more autonomy to the State Bank of Pakistan – a condition that was also part of the suspended programme but not fully implemented. It may also put a condition on debt management and restrict Islamabad from short-term borrowing.

Published in The Express Tribune, April 20th, 2011.

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Reader Comments (11)

  • Pragmatist
    Apr 20, 2011 - 9:28AM

    Without these “tough” conditions, the military will again seize the new funds and spend it on new nuclear bombs, missiles and terrorist training. IMF should seek accountability of every single dollar from Pakistan. Recommend

  • Adnan
    Apr 20, 2011 - 10:20AM

    Payback installment of existing loan and getting new one would create overwhelming pressure on comman man life in shape of Inflation/Electricity,GAS etc. The new loan approval revolve with condition of resturcturing of Public sector organization indicating
    IMF———Pakistan Parent———Child company relationship that should be disavow
    by Government. Recommend

  • ba ha
    Apr 20, 2011 - 11:20AM

    Why give another loan IMF? Just forgive the next installment. It’s likely 10 times more than the loan being offered. Kapeech Recommend

    Apr 20, 2011 - 1:35PM

    IMF is under direct control of USA, who is imposing extremely tough conditions on Pakistan to do more ie undertake operations in NWA.Recommend

  • Apr 20, 2011 - 2:51PM

    @RS Johar: Really? Why dont people pay their taxes so that we wont be under US pressure? But no, its more convenient to believe that the whole world is against us. Recommend

  • John
    Apr 20, 2011 - 3:22PM

    “Officials said the IMF may ask Islamabad to give more autonomy to the State Bank of Pakistan”

    Root of all problems. As long as SBP is a piggy bank for army and government for it’s extravaganza, no improvements can be accomplished.

    RGST is a first step for continued loan, that is if PAK wanted it. Recommend

  • Ik
    Apr 20, 2011 - 4:07PM

    How about army taking over all the land from the big landlords and auctioning it and raise moneyRecommend

  • meekal ahmed
    Apr 20, 2011 - 7:54PM

    I don’t think we are eligible for another PRGF. Our per capita income is too high.

    The IMF should ask for prior actions. That means actions BEFORE the program actually starts. Recommend

  • Anoop
    Apr 20, 2011 - 8:57PM

    IMF is wasting money by giving it to Pakistan. Money down the drain. Pakistan has completed a total of 1 IMF programs in its entire life. The chances are extremely high that history will be repeated.Recommend

  • Salman Raza
    Apr 21, 2011 - 12:44AM

    I think these are not tough condition, the PSEs should be reformed, and RGST should be implemented.Recommend

  • John
    Apr 21, 2011 - 12:45AM

    Army already owns about 12% of agricultural land and operates banks. Transport institutions, port, mining, etc. to the tune of about 20 billions. How much more do you want them to take over?

    The loans from IMF are easy to pay back, if only all the political parties realize that they have to pay back the cheapest source of money given only on the word of the PAK government without any collateral. Recommend

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