Fiscal crisis: Pakistan to pursue ‘home-grown’ solution

Finance minister reiterates that Islamabad will not be going back to the IMF.

The demands for economic reform by the International Monetary Fund had grown ‘too tough’ for Pakistan, leading Islamabad to instead pursue a ‘home-grown’ solution to its fiscal crisis, said Finance Minister Abdul Hafeez Shaikh in an interview with the London-based Financial Times.

“We [need to] signal to the world our continued commitment to reform and to pursuing a series of steps required to remain financially disciplined,” Shaikh said. “We want to achieve the kind of benchmarks we have set in our own domestic reform programme. This is a government that wishes to be serious about fiscal restraint.”

In the past two days, several newspapers have reported that the government would be going back to the IMF for the second bailout in three years, and had been seeking the help of the United States in getting the IMF to relax some of its preconditions for financial assistance. The minister’s statements appear to contradict those reports, though he has not denied them on the record.

In November 2008, Pakistan received a bailout from the IMF that eventually grew to about $11.3 billion. However, Islamabad was unable to complete the fiscal and regulatory reforms that the IMF had called for, resulting in the programme ending on September 30 with $3.4 billion undisbursed after the IMF had earlier withheld the last two tranches of the loan.

The government will need to begin paying the $8 billion that it borrowed from the IMF back, including a $1.4 billion payment due on February 24, 2012. While the government has budgeted this payment in its expenses, it has also been counting on receiving Coalition Support Funds from the United States.

Washington owes Islamabad about $3.4 billion in compensation for services rendered during the war on terrorism, but has so far received none of those payments this fiscal year.

Published in The Express Tribune, November 2^nd, 2011.