IMF does not want Pakistan to count on FODP promises


Shahbaz Rana April 20, 2010

ISLAMABAD: The International Monetary Fund (IMF) disapproves of Pakistan relying on uncertain pledges made by the Friends of Democratic Pakistan to finance its budget deficit, sources told The Express Tribune.

“It was a mistake that the government made the current budget on the basis of Friends of Democratic Pakistan’s (FoDP) promises”, said sources, quoting Adnan Mazari.

The IMF’s decision was conveyed to Islamabad by the IMF Director for the Middle East and Central Asia, Adnan Mazari, during his recent visit. This remark was prompted by the government asking the IMF for more money (extra ordinary facility for budget support) because the FODP had not given money they had promised.

An economic team, led by Shaukat Tarin, had estimated that Pakistan would receive $2.5 billion by June 2010 out of a total of $5.7 billion committed to Pakistan by the FODP.

The money has not materialised and a little over $600 million has been received so far. This amount also includes a rescheduled loan of $325 million of from the Islamic Development Bank.

The IMF has also informed Pakistan that it would withdraw the extra ordinary facility of budget financing from the next fiscal year and would not lend any money to Pakistan for financing its budget deficit, sources further disclosed to The Express Tribune, adding that the money could only be used for balance payments.

The Fund had approved an additional $3.3 billion including $1.2 billion for budgetary support on August 7 last year. The government had estimated the budget deficit at 4.9 percent of Gross Domestic Product or Rs 740 billion for the current financial year. The deficit target has been revised to Rs 769 billion or 5.1 percent of GDP.

This was because of lesser disbursements of Coalition Support Fund, fewer inflows from the FODP and more than expected spent on defence. The authorities were expecting that the budget deficit would end up around 5.8 per cent of GDP, said the sources, adding that, the government had already missed its nine-month budget deficit target.

An official of the Finance Ministry said that it would be difficult for Islamabad to arrange a major chunk of budget financing from domestic sources, as it would further burden commercial banks that are already facing liquidity problems. Furthermore the government may again resort to heavy borrowing from the State Bank, which may increase inflation, he added.

For the next financial year, the IMF has asked Pakistan to keep the budget deficit at 4.2 percent or around Rs750 billion, said the official. The government (taking a leap of faith) has again estimated that Islamabad would receive $2.5 billion from the FODP in July 2010 to June 2011, said another official source.

The IMF terms this “figure” to be “unrealistic.” It calculates that the government of Pakistan might get around $800 million from the FODP. But they believe that the money should not be a part of Pakistan’s budget financing, as there are a lot of risks involved with these uncertain inflows, said the official.

So far, for the next financial year the government has projected that other than the FODP commitments it would receive up to $4 billion from multilateral and residual donors who would help domestic financing, said the source.

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COMMENTS (3)

Qamar Abbas | 11 years ago | Reply in fact i am not in the favour of tax systam, we ve`t a capitalist economy, we ve a sound Muslim economy, and in Muslim economy ther is no space for any kind of so called income and value added taxes which are imposed on us by our ruling elite and IMF. we should only follow the Islamic tax system i.e. ZAKAT, USHER and like others... if we practcs it then we ve no need of IMF and others.
Meekal Ahmed | 11 years ago | Reply The IMF giving money to our budget is truly extraordinary. It is not even part of their remit. The IMF only provides money for balance of payments support. The money goes into our foreign exchange reserves. However, for what it is worth it does demonstrate the lengths to which they (read the G-7) were prepared to go to help Pakistan given the serious shortfalls of aid from the FODP. Let's hope the up-coming budget is more realistic in terms of indicating where the financing is going to come from. There is always a tendency to exaggerate financing levels to show you have closed the financing gap. But one needs to be realistic all the same. As for Mr Alam's comments. He raises many issues which are difficult to answer in a short reply such as this. On taxes let me just say that after saying stagnant at 9% of GDP for many years, this year the tax to GDP ratio is expected to fall to 8.8%, probably the lowest level in decades. A country which collects 8.8% of GDP in taxes does not have much of a future.
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