Bailout: IMF cautious on Pakistan’s bid for fiscal adjustments

Body appreciates framework in new budget; will give formal response after critically examining all figures.

Shahbaz Rana June 20, 2013
Pakistan is eyeing a $4.5 billion bailout package. ILLUSTRATION: JAMAL KHURSHID

ISLAMABAD: The International Monetary Fund gave a cautious response to Pakistan’s bid for deep fiscal adjustments in the new budget, as both sides set the tone of negotiations for a new bailout programme.

Leading the Pakistani delegation, Finance Minister Ishaq Dar gave an overview of the new budget for fiscal 2013-14 on Wednesday, while the IMF’s team was headed by Jeffery Franks, the Fund’s Mission Chief for Pakistan. Pakistan is eyeing a $4.5 billion bailout package, besides seeking a Letter of Comfort (A letter issued to a lending institution by a parent company acknowledging support of a subsidiary company’s attempt for financing) that will pave the way for obtaining over $6 billion from other international lenders.

The country has to pay back $6.5 billion in loans to international creditors in the new fiscal year, including a $3.2 billion loan to the IMF.

“They cautiously appreciated the fiscal framework but will give a formal response only after critically reviewing the numbers,” said a senior official of the finance ministry, who spoke on condition of anonymity.

In the proposed budget, currently under discussion in Parliament, the government has introduced steep fiscal adjustments equal to 2.5% of gross domestic product, or Rs655 billion that has surprised many as analysts say it will have adverse implications for growth in times of economic stagnation.

The IMF will be critically reviewing the measures proposed to achieve the Rs2.475 trillion tax target and subsidies for the power sector, the two critical areas that derailed the last $11.3 billion programme. The Fund will also scrutinise Pakistan’s “claims” of expecting to receive $1.1 billion from the United States under the Coalition Support Fund, $800 million in Etisalat (Middle East telecommunications operator) arrears and $1.2 billion from the auction of 3G spectrums, the ministry official added.

There are two choices for Pakistan: a front-loaded Stand By Arrangement or a performance-based Extended Fund Facility, but the IMF Board will not approve the SBA this time, given the fact that Islamabad never fulfilled the promises once its economic woes were temporarily addressed, said concerned officials. However, they said that unlike the past, this time the monetary body will not impose conditions that seem contrary to ground realities.

“This time they are not going to force something down their (Pakistan’s) throat,” an official claimed.

“Finance Minister Ishaq Dar was clear-headed and straight, giving a loud message that no harsh conditions will be acceptable,” the finance ministry official added. However, the devaluation of the Pakistani rupee is something the IMF will press hard for, as it will not allow Pakistan to use rapidly declining foreign currency reserves to defend the rupee against the US dollar, another official said.

Published in The Express Tribune, June 20th, 2013.


Naseer Ahmad | 8 years ago | Reply

"The IMF will be critically reviewing the measures proposed to achieve the Rs2.475 trillion tax target and subsidies for the power sector, the two critical areas that derailed the last $11.3 billion programme."

The major thrust on the Tax Revenue collection in the Budget 2013-14 is on indirect taxes which lack the buoyancy like the direct taxes. Achieving the tax target of Rs.2.475 trillion will be a Herculean task for the government.

unbelievable | 8 years ago | Reply

No harsh conditions? - yet the article make it clear that IMF wont' provide Stand By Arrangement because of previous lying, are going to scrutinize your revenue projections and are likely to require you to devalue your currency. . Cut to the chase. The IMF doesn't trust your promises and your not going to get a loan until they see you make concrete steps to increase taxes and cut spending - you can package that as "not harsh" but that's the reality your faced with. . Pakistan leaders would serve the people better with an honest assessment of why you need the IMF - the consequences of not getting another loan - and why raising taxes and cutting spending are ultimately good for the people of Pakistan. Chest thumping pronouncements won't intimidate the IMF and make the thumpers look foolish.

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