IMF clutches to expand further
“We are talking with the IMF for a successive programme and there is no need to panic about how Pakistan will service its foreign debt after 2012,” said Saqib Sherani, the principal economic adviser, on Thursday. He also disclosed that negotiations over the second programme started in February.
Although the adviser did not reveal the size or the timeframe for the next programme, experts expect a more stringent plan, focusing on micro issues like a reduction in size of the government and civil bureaucracy.
Pakistan’s total debt has increased to over Rs9 trillion, almost equally divided into domestic and foreign debt, and concerns are growing how the country will repay this amount. It is estimated that from 2012 it will require an average of $7 billion per annum just to retire loans taken from the IMF, World Bank and Asian Development Bank.
Dr Hafeez Pasha, former finance minister, said that within the next five years Pakistan will have to repay $13.5 billion to the IMF alone. “We should start making debt projections that require a different set of policies,” he added.
An official of the finance ministry said that an IMF team would visit Pakistan by end-October or early November to decide whether the existing programme will be extended for another six months or a second programme will be introduced. The government may avail the remaining two tranches of $3.4 billion of the existing standby arrangement by meeting the previously unfulfilled conditions, he added.
After fears of default, Pakistan rushed to the IMF in November 2008 for a $7.6 billion programme, which was later increased to $11.3 billion. The bailout package has been suspended since May, as Pakistan could not fulfil key structural requirements, which included levying the Value Added Tax and reforming the bleeding power sector. The government has made some progress on these issues and is expecting restoration of the programme by the end of this year.
In case the IMF does restore the first programme, which was originally supposed to end by December, Pakistan will be eligible to avail $3.4 billion in two equal tranches.
Dr Pasha proposed that the government has to use effective exchange rates for compression of imports, through which foreign reserves could be saved. Dr Pasha’s proposal seeks further devaluation of the rupee against the dollar, the flipside of which is that with a slight depreciation of the rupee the dollar-denominated debt would automatically increase.
Published in The Express Tribune, October 8th, 2010.
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