Oct 27 - Nov 02, 2008

As time is running out to avert default over international payment obligations and to inject liquidity to maintain highly disturbed balance of payment, federal government is said to have left with no option than to recourse to IMF for making liquidity immediately available. According to the IMF, booty to the country under a Stand-by arrangement has yet to be determined while government of Pakistan has started fulfilling pre-loan criteria.

Past experience shows that the lending facility stipulates correction in policy decisions to resolve country's balance of payment crisis and is for short term use of the IMF's resources.

Funding by IMF is disliked unequivocally by business community, economists, and politicians because of its tough conditions that force government to take economic measures painful to all and sundry. But, under the prevailing grim situation buzzing statements seem to be indicating no other rescue plan.

While fund factors in international market interest rate, before its formal approval elimination of price control and subsidy, structural adjustments that may be blocking economic development programmes, restructuring of growth driving sectors like energy, and maximum level of government borrowing could be demanded of the government.

By and large, these salient conditionalities have been met by the government of Pakistan which is gradually loosening strings of control over price determination, reflected in the unabated spirals of prices of food items and business goods. Most importantly, food inflation is turbulently running. Since IMF loan aims at to stem trade deficit from being further widened, it provides a buffer in which import and export balance can be achieved, but promotes actions that disfavour import restrictions.

In past, subsidy withdrawal has rendered sever losses to sectors which are in dire need of state financial assistance. Major sufferer of this practice has been agriculture sector which has not become sustainable enough to support itself independently so far. Especially amid recent global wave of price rise, it needs state helping hand to face cost push inflation due to price hike of imported inputs.

Consumers and industries have not saved from subsidy withdrawal as well. And, in shape of rising cost of energy they are getting after effects of eroding subsidies on petroleum products and electricity whereas the same is sought by the government from external sources.

Low tax to GDP ratio gives an opportunity to tap healthy revenue source. In addition to other sectors, agriculture sector exposes ready-to-be-explored avenue of tax network expansion as this sector enjoys immunity from taxes. Government recent incentives to farmers may be intending to impregnate seeds in the sector for future revenue harvesting. Only in few months government raised wheat support price to Rs. 650 per 40 Kg and then by another Rs. 300 to Rs. 950. Concessionary crop insurance and enhanced reach of farm loans are manifestations of government readiness to turn agriculture into revenue spinning sector. Any possible lending facility by the IMF to Pakistan must be monitoring these developments as positive nonetheless Fund's criteria restricting state financial prop.

Total Pakistan's credit outstanding due to IMF as of September 30, 2008 was SDR 795 million. The SDR is an international reserve asset created in 1969 and its value is determined by summing the values in U.S. dollars of a basket of major currencies.

The country's latest financial arrangement with the Fund was expired on December, 2004. In accordance with this financial arrangement, SDR 1,033 million was approved as poverty reduction and growth facility while total SDR 861 million was drawn. However, Pakistan drew complete SDR 465 million Stand-by amount approved in November, 2000. This Stand-by arrangement was expired on September, 2001. Out of total EFF of SDR 456 million sanction expired on October, 2000, just 113 million was drawn.

According to Fund's statistics, when a member has overdue financial obligations outstanding for more than three months, the amount of such arrears are shown as projected payment to Fund, which is elongating timeline of receiving principal and interest charges from Pakistan to 2012. Remember, this projection is for previously agreed arrangements instead of any fresh one. Since 1984 Pakistan has mostly made PRGF arrangements with the Fund. Further more, it went into Stand-by arrangement that is the Fund's largest consumable product across the world.

Pakistan has got Fund's membership in July11, 1950. And since 1984, it has experienced several transactions such as disbursement of loan and repurchases of country's debts by the Fund. The biggest disbursement was recorded in 1989 when SDR 467 million landed in the government treasury. Interest and charges incurred on the loan were around SDR 42 million. The second highest disbursement occurred in 1999 with SDR 447 million principal and SDR 32 million mark-up. Last transaction executed in 2004 with disbursal of SDR 172 million on which SDR 13 million interest rate was calculated.

IMF claims that it intends to bring stabilisation in economy entwined with critical phases through its financial resources and helps the economy to become sustainable. However, examples of Brazil and Argentina stand against any such intention as both these economies did not able to come out of crises until they had offloaded Fund's lends from their reserves. Argentina which was once known as land of snobbish and experienced phenomenal economic growth, higher than that of USA, after being critically fallen into debt trap has witnessed further deterioration of its economic conditions.

Despite Pakistan's doom pushing it closer to the Fund, rather that has already done it, upshots of such lending facility over fainted economy may be turned into benefits if government tries to keep loan size small and for remaining requirement finds some other avenues like wealth of residents living inside and outside the country.