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IMF to lend $7.6 bn to Pakistan

By admin | November 16, 2008

KARACHI: Pakistan on Saturday formally announced subscribing to the International Monetary Fund’s (IMF) loan plan to avert the financial crisis.

Speaking here at a press briefing, Finance Adviser Shaukat Tareen said the move followed talks with multilateral donor agencies and friendly countries that were willing to help only after Pakistan gets an IMF endorsement.

“We don’t want to hide anything and everything will be in print once the IMF board approves the programme,” he said, adding that this would be for the first time in Pakistan’s history that its home-grown plan will be adopted by the Fund.

The IMF programme will not affect country’s defence spending, he said, emphasising that the IMF will not micromanage Pakistan. “You will see the details when they are posted on IMF’s website,” he said.

The government will officially apply to the IMF next week and the first tranche will be received this month, he said without specifying its size. But, he said, it would be enough to cover this year’s balance of payment gap of $ 4.5 billion and $ 3.5-$ 4 billion requirement for the next year.

Any amount received over and above this will be used to build the reserves to a level to meet imports for three months, he said. “This will bring stability and confidence in the market,” he said.

Giving details of the agreement with the Fund that allows Pakistan to borrow a minimum of $ 7.6 billion during the next 23 months, he said repayment of the loan would start in 2011-12 and end in 2015-16.

Pakistan will receive up to $ 4.5 billion at 3.51 per cent interest rate, which will increase to 4.5 per cent for rest of the amount, he explained.

Tareen, who was flanked by the governor State Bank of Pakistan (SBP), said Pakistan had made no extraordinary commitment under the IMF programme. “All that they want us to do, we have already committed to it in our budget for 2008-09.”

The commitments refer to scaling down the fiscal deficit to 4.3 per cent of the GDP from 7.4 per cent, cut in the inflationary government borrowing from the SBP, increase in the interest rate to fight inflation, exchange rate flexibility and improving tax-to-GDP ratio from the current 9.6 per cent to 15 per cent in the next 5-7 years.

He said the fact that the IMF programme would reflect government’s budgetary targets would make it easier for the country to meet the commitments. “But our targets are very aggressive. This means the government will need to cut the fiscal deficit and borrowing from the SBP.”

After the IMF, he said, Pakistan would also seek support from the World Bank, the Asian Development Bank, the Islamic Development Bank, the Department for International Development of the UK and the friendly countries.

Asked if the interest rate would be raised again, he said the SBP would take the decision next year after reviewing the rate of inflation. “But we are hopeful the steps we have already taken will start dampening inflation,” he said.

SBP Governor Dr Shamshad Akhtar said the IMF funding would not be used for supplementing the state expenditures as the government had committed to utilise it to maintain the foreign exchange reserves at a certain minimum level.

Agencies add: Explaining the background of the arrangement with the IMF, he said the government had contacted the multilateral agencies and all ìour friendsî were appreciative of the countryís programme. ìThey were all willing to give us a helping hand, but wanted us to get the endorsement of our programme from the IMF. Moreover, the timing was an issue for us as our foreign exchange reserves were depleting at a regular pace,î he said.

Tareen said the IMF showed a very positive approach while assessing Pakistanís program. ìIn the process, they also offered us to access their standby facility under exceptional provisions for an amount as much as 5 times of our quota, which means fast processing of the request,î he added.

ìThey did not give us any conditions different from those already committed by us. They sat down with our team in Dubai and prepared a detailed quarterly plan based on our own home-grown agenda. The only area where they counselled us was to increase the interest rate to curtail the core inflation,î he further said.

ìWe believe that we can see commencement of a steady stream of inflows now on, eliminating the air of uncertainty in the country,î he said.

He said the government was pursuing the United States and the European Union to provide Pakistan access to their markets. “We are working to sign a free trade agreement (FTA) with the US,” he said, adding that the US government would also be requested to implement the bilateral trade agreement (BTA) at the earliest besides the extension of the reconstruction opportunity zones (ROZs) to the entire NWFP and Balochistan provinces.

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