After recent devaluation of rupee the government of Pakistan
has fulfilled all the conditionalities of the International Monetary Fund (IMF)
except resolving the HUBCO issue, the fund is still not willing to resume $3.5
billion 3 years assistance under poverty alleviation and growth programme.
Instead, as the latest indications from IMF sources indicate, Pakistan may
receive about 1.5 billion US dollars for one year under standby arrangement at a
higher rate of interest. In addition rescheduling of $2.2 billion debt service
may be arranged to enable Pakistan to save itself from default till Sept. 2001.
It is for the second time that debt service payments would be
rescheduled. The bilateral donors including Paris Club members rescheduled 3.1
billion dollars payment due from July 1,1998 to 31st December 2,000. Islamabad
had approached Paris Club in January 1999.
Official sources said that the financial package is designed
to take care of the current account deficit for about a year, though bulk of the
disbursements would made before end of June 2001. The disbursements would
include 520 million dollars out of the 800 million dollar Asian Development
Bank, the 350 million dollar World Bank Structural Adjustment Loan and major
portion of the IMF financial assistance of 600-700 million dollars.
An agreement has been reached with the IMF management but the
exact quantum (of assistance) would be known only after the approval of the
executive board of the Fund, anticipated by official in the second week of
November. The first installment will be paid immediately after the board
Islamabad is however pressing IMF to raise the level of
funding. The level of IMF bailout package has been based on the Fund's own
assessment of the current account deficit for the tenure of the funding
facility, a perception and approach not shared by Islamabad. Simultaneously,
Islamabad is continuing talks on conversion of the low volume short-term standby
credit carrying high interest rates into larger level of longer term Poverty
Reduction Growth Facility (PRGF) extended at confessional rate of interest.
Sources said the IMF has agreed to consider extending PRGF after monitoring the
track record in the execution of Fund's programme for six months ending march
2100. If approved, the PRGF wound become effective from next fiscal. In return
IMF would expect for more radical, long term and sweeping reforms including
restructuring of civil service, making tax machinery more effective and cut in
tariff rates. The Fund would also monitor the exchange rate, budget deficit and
economic growth. One vital area of concern for multilateral agencies is how
effectively the various policies and programmes are executed.
The budget deficit has been revised upwards from original
target set at 4.6 per cent of the GDP to five per cent under IMF advise,
reportedly for shortfall expected in revenue collection estimated for the year.
Sources said the fiscal deficit has also been revised upwards because of the
stipulated 12 per cent depreciation of the rupee against the dollar that will
raise the rupee cost of servicing of foreign debt and make government imports
costlier. Interest rate hike will raise the financial charges for the government
domestic borrowings. These factors, sources said, have been taken into account
when setting the new fiscal deficit target with IMF approval.
While the IMF officials are concerned with the details of the
financial package they ultimately draw up, the extent to which Pakistan can
honour its varied commitments under that, and the manner in which Pakistan can
benefit economically from that, the nominees of the Group of 7 on the IMF Board
have to get their political clearance from their governments.
A report emanating from Washington is significant in this
regard which said that countries identified internationally as supporters of
terrorism and those with corrupt and undemocratic regimes are not likely to get
IMF assistance. According to the press report, at a recent question-answer
session held at the National Press Club in Washington DC, IMF Managing Director
Horst Kohler explained the Fund's policy in this regard. He however, qualified
this policy by stating that the IMF on its own cannot square the circle.
The questioner had asked if the IMF should make loans to
countries identified as supporters of terrorism, Mr. Kohler in his reply said;
Certainly not, but the IMF is not—how should I say the lord who knows
everything. And the Fund cannot square the circle. We have an assessment. We go
to the countries with all of the best experts we have in order to assess the
situation. We are often in a situation, not knowing exactly all the details of
the situation. He said the Fund should be even more careful, particularly in the
field of corruption of undemocratic regimes, not to work with them, "but
this is then, also an issue of our shareholders to come more clearly out how
they see this country and the cooperation with this country".
Out of G7 countries Japan is more friendly and sympathetic to us. It is also
important to us as it is the largest single donor with an annual package of
about 500 million dollars. Japan Prime Minister Yashiro Mori visited Pakistan
August as a part of his South Asian tour to discuss bilateral relation between
Japan and Pakistan, it was repeatedly made clear by Japan's embassy in Islamabad
that Japan cannot resume its aid programme suspended since 1998 nuclear
explosion unless Pakistan signs CTBT and shows strong commitment to nuclear non
proliferation. Japan's Ambassador in Pakistan, while addressing a meeting of
Chambers of Commerce and Industry in Karachi offered to release all the
accumulated amount of suspended and once CTBT is signed by Pakistan.