The suspense over the timing of a government request for an International Monetary Fund (IMF) bailout finally ended on Thursday when Finance Minister Ishaq Dar said a new package will be negotiated — but on Pakistan’s terms.
Addressing the post-budget press conference, the finance minister said Pakistan will negotiate a new programme with the Fund to obtain a loan for meeting its obligations towards the institution, but “national interests” will not be compromised.
Dar said in its visit from June 19, the IMF mission will also review the country’s ability to pay back the earlier obtained loans.
“Talks will also be held for a programme but on terms and conditions of Pakistan,” said Dar. The IMF’s dictation will not be accepted, he added.
His statement will bring an end to speculation about the looming threat of default due to the rapidly depleting foreign currency reserves. “We will take loans to the extent we owe to the IMF,” Dar added.
Pakistan had earlier obtained an $8 billion loan and has paid back $3.7 billion, leaving it with a balance of roughly $4.3 billion. The finance minister said there was no harm in obtaining loans to the extent of paying back earlier loans.
In November 2008, Pakistan had signed an $11.3 billion programme with the IMF to avoid possible bankruptcy. However, the monetary body prematurely terminated the arrangement following Pakistan’s inability to initiate crucial fiscal and energy reforms. The budget 2013-14 unveiled on Wednesday carried the required level of fiscal adjustments the IMF had demanded early this year when both sides discussed the new programme. The government has also proposed steep fiscal adjustments of about 2.5% of gross domestic product, or Rs655 billion.
“The international community is appreciative of our efforts and has given positive signals,” he said in response to a question about the reaction of international lenders to the budget. “They have seen we have taken serious measures.”
However, he insisted the PML-N government introduced fiscal adjustments on its own to put the economy on the right path and there was no demand from the IMF.
Dar also vowed to convince the United States to release $1.2 billion on account of arrears of the Coalition Support Fund.
When queried on the rise in sales tax from 16% to 17% and whether it would place a burden on the rich and poor alike, the minister stated, “It is an insignificant adjustment that will not put additional burden on the poor.” He also ruled out the inflationary impacts of levying withholding taxes on many sectors.
Contrary to the impression created through social media regarding levying maximum tax of 30% on the salaried individuals, Dar said only 3,114 individuals will fall in the category of Rs1.4 million bracket plus a 30% tax.
In the budget, the new government significantly increased the tax burden of the salaried class by increasing the number of slabs from 6 to 12 and also raising the maximum tax rate from 20% to 30%.
Dar reiterated that the PML-N government will tackle the circular debt head-on to overcome the energy crisis. Before June 30, the government will clear all dues of independent power producers (IPPs) and PSO.
Investment of Rs326 billion in Pakistan Electric Power Company was shown in the budget to clear the circular debt. Dar said public sector power dues will be cleared in July. Some Rs168 billion have been set aside for this purpose.
He also announced to renegotiate the terms and conditions of the agreement between the government and the IPPs, which are currently in favour of the latter. He said the government will ask the IPPs to reduce charges on late payments from Kibor plus 4% to Kibor plus 2%.
Further, the current credit limit of 30 days IPPs allow to the government will be requested to be increased to 60 days.
Published in The Express Tribune, June 14th, 2013.