Loophole in bailout: IMF says Pakistan has to borrow $2 billion more

Published: November 13, 2013
IMF says Pakistan has to borrow $2 billion more. PHOTO: REUTERS

IMF says Pakistan has to borrow $2 billion more. PHOTO: REUTERS


In the course of its recently concluded Pakistan visit, the International Monetary Fund (IMF) revealed that Pakistan will have to borrow an additional $2 billion on war footing due to a major loophole in the design of the $6.7 billion bailout package.

Sources in the finance ministry told The Express Tribune on Tuesday that the adjustment was made during a revision of the current account deficit forecast, which currently stands at $3.2 billion for the fiscal year 2013-14.

In July this year, the current account deficit – the difference between external payments and receipts – had been projected at $1.3 billion, they added.

The IMF has now projected that the current account deficit will be 1.5% of the Gross Domestic Product (GDP), as compared with the earlier projection of just 0.6% of GDP. The $1.3 billion, or 0.6% of the annual GDP projection, became irrelevant as the limit was reached in just three months of the package’s approval on September 4, casting doubts on the IMF’s working.

The IMF’s projection of the balance of payments came under criticism immediately after the approval of the $6.7 billion assistance under the three-year Extended Fund Facility.

Noted economist Dr Hafiz Pasha termed the IMF’s earlier projections incorrect while arguing that the deficit will remain close to $2.7 billion. The State Bank of Pakistan (SBP) had originally projected a $2.6 billion current account deficit, but had to understate the number under IMF pressure.

Independent economists had argued that initial rosy projections would ease short-term borrowing requirements but bring foreign currency reserves under severe strains when financing requirements will be much more than projections in May and June next year.

In the aftermath of the adjustments, sources said the IMF has now lowered its projections for growth in exports and increased estimates of imports. It has also revised the economic growth projection to 2.8% as against earlier estimate of just 2.5%.

Sources added that the IMF has also slightly lowered the requirements of building gross official foreign currency reserves, which had earlier been fixed at $9.6 billion.

The SBP did not respond to questions of revised current account deficit and lowered reserves requirements.

Filling the gap

To raise the additional $2 billion, Pakistan has assured the IMF that it will look to international markets. It has planned to borrow $500 million from the Overseas Private Investment Corporation (OPIC) in addition to expensive commercial borrowing of another $500 million, ministry of finance officials disclosed.

Islamabad has also told the IMF that it will raise $500 million by floating a Eurobond, and that process for it has already been started. The remaining $500 million requirement will be met by other sources, such as the UK’s Department for International Development (DFID) and the Islamic Development Bank.

However, due to the country’s credibility crisis, serious questions of debt sustainability and the conditions attached with these loans frequently arise. For this reason, there is often a mismatch between the government’s plans and what is eventually disbursed.

According to statistics provided by the Economic Affairs Division, for the current fiscal year, the government had originally planned to receive $5.5 billion in foreign assistance, but only managed $590 million in the first three months.

A senior government official said external accounts will remain under pressure until the $2 billion receipts materialise. The country’s debt burden is also increasing at an alarming rate and with the government’s additional Rs980 billion in its first three months, the total burden adds up to Rs15 trillion. The rupee depreciation has also contributed significantly in increasing the burden.

Published in The Express Tribune, November 13th, 2013.

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Reader Comments (21)

  • Gp65
    Nov 13, 2013 - 11:01AM

    If the current account deficit projection for the full year was breached in 3 months, how does it cast a question mark on IMF working? It would have worked with the data provided by Government of Pakistan. So it is GoP that provided incorrect data.

    Anyway, this does not project any loophole in the contract. On the contrary by documenting hese things and holding Pakistan overnment’s feet to fire, IMF is ensuring that verbal commitments are translated into action.Recommend

  • Anoni
    Nov 13, 2013 - 11:05AM

    If we can just do away with Protocol of the elites .. We will surely save a one billion Dollar.

    How is that for a change ?


  • Nov 13, 2013 - 11:11AM

    What a fail PML-N voters brought on the country. A failed ‘experienced’ team, with no vision or sympathy for the common man.
    Dar and Sharifs are unfortunately, turning out far worst than PPP. Not only do they act irresponsibility, they also are making policies directly benefiting to their economic empires e. g. Sugar industry bans and lack of accountability for stocking reserves.
    Shame on PML-N voters, who just the faces of these rulers and not their own pockets, whom, I know, would be equally devastated under these policies.


  • Anoni
    Nov 13, 2013 - 11:12AM

    Even IMF economist make mistake.. Then the Pk economist make them too ..

    indicating a serious issue of professionalism. Or more like bluffing their own nation to keep the job


  • Gp65
    Nov 13, 2013 - 11:13AM

    2 weeks back, the news claimed that he World Bank was eager to lend 700 million for Dasu Dam project http://tribune.com.pk/story/627129/key-project-islamabad-approaches-world-bank-for-dasu-dam/. Why then is that amount not listed in the sources for raising 2 billion?

    The reality is that the Dasu dam is not even listed as a pipeline project on World Bank site and while newspapers in Pakistan readily report such fake projects, IMF wold not have not ought such misleading information.

    Incidentally, IMF pressure to achieve 1.2 billion would have meant that this is something it expected Pakistan to achieve by making suitable changes in its policies including gradual depreciciation of currency and other measures to control imports. If the SBP forecast was 2.6 billion, then it was incumbent pin the government to make appropriate policy changes o achieve the committed CAD.

    This is not a reflection on IMF but Government of Pakistan. Also it is nit a loophole when the lenders require that you meet covenants on a loan.Recommend

  • Nov 13, 2013 - 11:28AM

    For all those who do not understand the aforementioned dagger in disguise,
    This means that the tax collection by the government has to increase. This will either be done by introducing more indirect taxes, or putting direct Value Added Tax on all products.
    So for the common man, just understand that currently something that costs about Rs. 100
    will go up to around Rs. 130-140 assuming government has to implement Value Added Tax.
    Now, we know from their tenure since May that PML-N government doesn’t target the rich when it comes to taxation. So I guess the middle/labor class has to pay for it.
    My people, wake up, please!
    This is the time for awakening or our economy will collapse to simple an elite class and a slave class. Where the elite will dwell in palaces whereas the slaves will subservient to them for daily commodities.
    Wake up! Don’t be pro-party, be pro-Pakistan.


  • Ashkenazi
    Nov 13, 2013 - 11:57AM

    More debt to solve debt. What else can go wrong?


  • Aschraful Makhlooq
    Nov 13, 2013 - 12:26PM

    IMF,World Bank and US would never free Pakistan from aid and loans and this way is chosen by Pakistani leadership itself just due to the prodigal and luxurious leaders’ living’s styles because their luxurious and prodigal expenditures can never be fulfilled without aid and loans……


  • Haseeb Khan
    Nov 13, 2013 - 12:50PM

    IMF projected were correct to put it straight
    GOP revenue projections and actual numbers are not correct.FBR has withheld Refunds of about Rs 90 Billion.

    IMF will advance more money to keep Pakistan going till 2014. Then shock treatment may follow

    Pakistan policy makers have to realise that they need to tax income from all sources and tax to GDP ratio has to go up to atleast 12 % in Two years


  • abdussamad
    Nov 13, 2013 - 2:22PM

    TLDR: The dollar is going to hit Rs. 130 and official inflation numbers 30% (in reality 60%) before the end of the fiscal year.


  • Farooq
    Nov 13, 2013 - 2:24PM

    Going toward bankruptcy


  • abdussamad
    Nov 13, 2013 - 3:17PM

    Default on the external front does look very likely now. I think Greece also defaulted while under an IMF program so it is not unprecedented. But Pakistan will likely be the first to do it with a debt to GDP ratio of only 60%. Greece’s was over 100% when the defaulted. Our problem is that we can’t get anyone to lend us dollars.


  • khan Sahib
    Nov 13, 2013 - 3:19PM

    I am not an Economist/ Accountant/ Auditor/ Business Administrator and therefore cannot say any thing about the terminologies used in the column or in the comments. I can surely say one thing, keeping in view my daily encounter with the inflation and depleting civic facilities that we must ( and in a very short span of time) outsource “Managing our Economy” so that people with knowledge and experience may get the chance to bring positive changes both in the System and in our lives.


  • Max
    Nov 13, 2013 - 4:52PM

    Pakistan took the $6.7 billion loan to pay its upcoming debt installments. Does this report mean that the Finance Ministry wasn’t aware of $2 billion in upcoming debt repayments when it rushed to the IMF in June? What a sorry state of affairs.


  • Jibran
    Nov 13, 2013 - 5:34PM

    ET needs to arrange a crash course for its reporters, or hire the literate ones to begin with. This story hinges on the alleged “projections” of the IMF. To educate the author, “Shahbaz Rana”, it is the Government which makes projections. It seems like last budget was just a plethora of lies and deceit. Ishaq Dar fudged the numbers to get the previous IMF bailout. How is this is IMF’s fault. IMF will do a favor, if it agrees to release more money to the fraudsters.


  • MAD
    Nov 13, 2013 - 5:53PM

    IMF probably had its projections based on incorrect data received from GOP. So all that they said about our Finance Minister may well be true. The country in a deep hole now and quite literally even after borrowing BIllions even now “Khazaana Khaali Hai”.


  • Indi.pendent
    Nov 13, 2013 - 6:05PM

    IMF programs have earlier played havoc with countries like Indonesia and Argentina. Indonesia is a recent example, with the situation very similar o Pakistan when IMF started tightening its noose around the economy in the garb of bailouts and other incentives. The formula here is exactly the same. Increase direct tax, such as sales tax, a specific tax, value added tax (VAT). Increase the price of utilities like power, gas, fuel. Remove all subsidies which benefit the poor strata of the society, hence dividing the poor and the rich into two extremes and totally decimating the middle class.
    Even now there is no concerted efforts to increase the indirect taxation with taxing the rich which numbers more than 3 million. Rich landlords, capitalists/industrialists, Estate developers who are taking full advantages of the loopholes in CBR/FBR laws.

    Anyone in the government cognizant of this huge catastrophe in the making, right here, right now.



  • Nov 13, 2013 - 6:44PM

    My people never learn. My people never learn. My people never learn. :(
    Are you aware of any platform through which we can actually communicate the atrocities of the IMF program to the NA, and to the public? So that they understand how brutal an interest-based debt is on the common man.
    P. S. Thank you for informing my people.
    These few news that ET passes out, are far more serious than any Taliban insurgency, military coup, party statement or even an invasion. They distort the fabric of humanity, if only one understands.
    My people just see this as “inflation”, but the reality of these economic policies and the consequences is far worst.
    As poverty and unemployment in the country increases, so does corruption. Soon, due to the lack of resources, people will start to steal/commit crimes to keep their lives in line.
    Prostitution will increase, dacoit culture will start to prevail, organ-sale is already being done by the labor class of the country and it will increase, as frustration increases in the people so will the rapes of women and children, and eventually this all will fall in the slave-master modal as you mentioned. What a bitter reality and my people in their naivete don’t see the hypocritical, spineless and apathetic nature of our rulers.
    As blatant as it seems, the economic modal is exactly this, and nothing otherwise. It is a systematic deprivation of the society distorting the line between man and animal.
    If only my people understand…

    (ET Mods, why do most of you sensor my comments about world economy, trust me, you will soon feel the heat of the treason our rulers are committing against us.)


  • Ashkenazi
    Nov 13, 2013 - 9:26PM

    The dont make mistake. The idea is to pump and dump. Pump when giving usurious loans and dump when it is time to collect spoils chapter 1 of Economic Hitmen book.Recommend

  • SHB
    Nov 14, 2013 - 4:13AM

    I am not an economist or accountant but a working person.
    If I have too much loan to pay back and my back is against the wall, then I will decrease my expenses. Can GOP do that? If not , why not? Can Mr Dar answer this question. He is the finance minister.
    Second step. US govt owes more than three trillion dollars loan at this time but half of the money is owed to US citizens. So when loan is paid back to these people’s , money stays in US. Can GOP raise funds by selling US dollars bonds to Pakistanis in stead of raising funds out side Pakistan. There are lot of rich Pakistani families .
    Any body to comment?


  • Leela
    Nov 14, 2013 - 9:04AM

    Wonder how much it costs to ‘test’ missiles whenever India does a test or building a huge nuclear arsenal? Irresponsible spending based on concocted narratives will be playing a cruel joke on the average citizen, while the elite are having a blast.


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