IMF $ 2.5 BILLION FUNDING PROGRAMME
IMF director, appreciated the efforts to revive the economy
From Shamim Ahmed Rizvi, Islamabad
Mar 27 - Apr 02, 2000
We are expecting all possible support and financial assistance from the IMF for our economic revival programme, the Finance Minister, Mr. Shaukat told the waiting newsmen after his lengthy meeting with Mr. Abbas Mirakhor, IMF Director for Pakistan and Iran who visited Islamabad last week to have a briefing on Pakistan's present economic position and future funding programme for Pakistan.
Indications are that Pakistan is seeking a fresh programme of 2.5 billion dollar funding programme instead of on going ESAF arrangements which may be terminated. Out of three year 1.5 billion ESAF funding, Pakistan has received hardly 50 per cent during the last 2 years. Pakistan has not received any installment during the current financial year.
The luncheon meeting with Mirakhor hosted by the Finance Minister was attended by Minister for Commerce and Industries Razak Daud, Minister for Petroleum Usman Aminu-ddin, Minister for Labour and Manpower Omar Asghar Khan, Dr. Attiya Anayatullah, Shafi Niaz (both the members of the National Security Council (NSC), Chairman Privatization Commission Mian Altaf Saleem and Secretary General Ministry of Finance Moeen Afzal. Mirakhor who has come to Pakistan for the first time since the change of government on October 12 last year, the sources said, appreciated the efforts to revive the economy.
The sources said, Mirakhor discussed with the Finance Minister the possibility of offering a three-year new financial package by converting the ongoing $ 1.5bn ESAF/EFF into Poverty reduction and Growth Facility (PRFG) which could be in the region of $ 2bn to $ 2.5bn. He told Shaukat that an IMF mission could come to Pakistan within this month or in April next to work out details of the new funding programme.
Economic Managers of Pakistan are hopefu of signing a new three year programme of slightly over US $ 2 billion with the IMF during the current financial year. The existing 1.5 billion dollar ESAF/EFF may be converted into the proposed poverty reduction and growth facility (PRGF) programme. Sources in the Multinational agencies in Islamabad also confirm this perception further indicating that the arrangements may be finalized when the IMF mission arrives here this month or early April. Although the size of the new assistance programme has not been firmed up, it could be 2 billion dollar or more and that it all depended on the outcome of talks and the government's ability to come up with detailed programme of acquiring the new funding line, sources added.
The government has been told that a IMF mission to be headed by Ms. Sena Ekin could come to Pakistan at the end of March or early April or after the Fund's Interim Committee meeting being held in the middle of April in Washington. The new three years programme will have the support of the Paris Club and the US government. If Pakistan gives us a strong programme of economic reforms we would oblige your government", a source said.
Nevertheless the sources said that the IMF wanted a number of things to be done and given to it in the form of a detailed report about the state of the economy. The IMF has received some report from the ministry of finance but it wanted a new and thorough report much before the announcement of the budget for 2000-2001.
Pakistan has been told to announce new measures related to the levy of General Sales Tax (GST) on small traders. The Fund officials believe that the issue should have been sorted out by working out some mechanism or formula and enforced effectively. The sources said that the IMF felt very strongly about the delay in the levy of controversial GST programme and said that the same should have been imposed immediately after the military government took over.
Similarly, the sources said that the government was expected to tax the agriculture income. In this regard the IMF wanted that the government should collect details about the top five per cent agriculturists and force them to pay their adequate taxes." We know that principles have been settled for the levy of GST and tax on agriculture income but then the government should have by now announced certain criteria or a formula for levying both these taxes".
Reportedly Abbas Mirakhor has appreciated the various measures taken by the present government to revive the economy and shared the perception that the economic revival programme could not be implemented without the financial assistance specially the IMF which had frozen its funding.
The government of General Pervez Musharraf unveiled an economic revival plan in December which called for raising tax receipts, speeding up privatization, reviving agriculture and industry, stamping out corruption and encouraging investment. But the stalling of the aid programme, which was attached to the rescheduling of about $ 4 billion worth of payments Pakistan owes to its bilateral and commercial lenders and holders of eurobonds, was seen tying the government's hands.
Government officials said they expected the IMF, which has suspended the $ 1.56 billion lending programme since June, to send a review mission to Islamabad sometime next month.
While the IMF lifeline remains held up, Pakistan's balance of payments situation has worsened. The trade deficit ballooned to about $ 800 million in the first year beginning last July while private inflows of hard currency showed little improvement.
Pakistan in its current budget had set a trade deficit target of 800 million for the full fiscal year. The government last reported that its cash foreign exchange reserves were slightly above $ 1.5 billion, barely enough to finance eight weeks of imports. However, sluggish business and investment activity have helped keep inflation down and the rupee stable, and have encouraged government to slash interest rates and lift most restrictions on capital movement and imports. Independent economists, however feel that besides sizeable help from IMF and other donor agencies Pakistan will have to go for another reschedulling.