Islamabad’s capacity to repay its $11.3 billion International Monetary Fund (IMF) bailout package will be on top of the agenda when Pakistan and the IMF begin their first round of meetings in Dubai next Tuesday (September 25).
During the week-long technical discussions, IMF authorities will review Pakistan’s ability to pay back a remaining debt of approximately $8 billion. A significant chunk of that amount, $2.9 billion, will be repaid during the current fiscal year 2012-13, out of which Islamabad has already paid $395 million in the first quarter.
Following the technical level talks, an IMF team will arrive in Islamabad to hold policy-level dialogue. A significant part of the parleys will involve meetings with President Asif Ali Zardari and Prime Minister Raja Pervaiz Ashraf.
The IMF has shown its skepticism over Finance Minister Dr Abdul Hafeez Shaikh’s ability to deliver upon debt commitments following a failure by the government to implement crucial reforms under the last bailout programme.
Pakistan’s exposure to the $11.3 billion IMF loan has also obligated the country to hold post-programme monitoring exercises, aimed at keeping a close watch on the economy. This will be the first formal monitoring mission of the IMF.
Sources in the finance ministry said that the country was currently enjoying a relatively comfortable position on the external front. However, they conceded that financing the current account deficit-gap between external payments and receipts remained a challenge, adding that it would likely be one of the thorny issues between both sides.
The government is going to present an estimated current account deficit of $3.2 billion or 1.3% of the Gross Domestic Product (GDP), according to sources. The projections are lower than depicted in the Annual Plan 2012-13, unveiled with the budget just three months ago. In the annul plan, the government had shown a current account deficit of roughly $5 billion or 1.9% of GDP, according to official documents.
The reimbursement of held up coalition support funds (CSF) of $1.2bn by the US in the wake of reopening of Nato supply route provided a much-needed cushion to dwindling foreign currency reserves and also became the biggest source of non-tax revenues to the government.
However, despite a projected deficit of 1.3%, the sources added that financing the deficit will be a problem that will also make Pakistan’s position to repay the IMF debt ‘vulnerable’. The sources added that the government will have to finance at least $2 billion of the expected deficit out of reserves held by the central bank.
There has been a long held view by independent experts and leading international lending agencies that Pakistan will have to seek a second bailout programme from the IMF by end of 2012 or before close of this fiscal to honour its international debt obligations. However, finance ministry officials are of the view that the decision to enter into the second programme will be dependent on global oil prices.
Published in The Express Tribune, September 18th, 2012.