Seeking a bailout package worth $5 billion to support the drowning economy of the country, the PML-N-led government and the International Monetary Fund (IMF) on Wednesday opened a weeklong debate on the country’s latest fiscal and macroeconomic adjustments.
The talks opened in Islamabad and will continue until July 3. Finance Minister Ishaq Dar is heading the Pakistani side while the IMF delegation is led by Frank Jeffery.
On the first day, the IMF delegation expressed its satisfaction over budgetary proposals adopted by the government for the fiscal year 2013-14, as both sides debated on the initial terms in connection with Islamabad’s request for the bailout package worth $5 billion for the repayment of the Fund’s outstanding loans.
During the talks, Islamabad will try to convince the IMF delegates to reach a consensus on a new extended fund facility (EFF) of $5 billion repayable in 10 years (easy installments). For this purpose, the government thinks its recent moves of making the fiscal adjustment of 2.5 percent in the GDP to reduce fiscal deficit from 8.8 percent to 6.3 percent of the GDP in the next financial year will prove supportive.
On the other hand, the IMF can stress the government to withdraw its subsidies in the energy sector that would raise the power and gas tariffs. This can put the Nawaz Sharif government in trouble as the move will not bode well with the masses.
In this connection, the Dar-led Pakistani side will also take the IMF mission into confidence on its strategy to settle over Rs 503 billion of the circular debt in the energy sector before the mid of August and a roadmap to restructure the power sector and further fiscal adjustment of 1.3 percent of the GDP in 2014-15 and 1 percent of the GDP in 2015-16 to bring down fiscal deficit to about 4 percent of the GDP.
However, during the ongoing negotiations, Islamabad will seek a letter of comfort from the IMF to remove hurdles in resumption of programme loans by the World Bank and the Asian Development Bank. These loans had been held up since 2009, right after IMF suspended its programme on failed reforms.
Islamabad’s public debt had already touched Rs 13,626 billion by the end of March, an increase of Rs 959 billion or 8 percent higher than the debt stock at the end of last fiscal year, according to the Economic Survey of Pakistan 2012-13.
Public debt as a percent of the GDP reached 59.5 percent of the GDP by end-March compared to 59.8 percent during the same period last year.
Things remained equally challenging on the external front where the foreign exchange outflows outstripped foreign inflows, putting immense pressure on the exchange rate and drawdown on official foreign currency reserves.