Pakistan seeks $7b from IMF, negotiations underway

Pakistan is in the process of convincing the International Monitory Fund (IMF) for a loan programme worth $7 billion in the face of the country’s depleting foreign currency reserves.

Finance Minister Ishaq Dar has already said that the Pakistani delegation is seeking “something pragmatic” ranging between $5 billion to $7 billion.

According to the State Bank of Pakistan’s facts and figures, the country’s foreign-exchange reserves faced a decline of over 40 percent to $6.24 billion in June last year, just enough to cover about two months of imports.

It is expected that any deal, if finalised, will bring some confidence to the market as well as strengthening the value of the rupee.

Dar also vowed to clear $5 billion of the so-called circular debt that has choked power generation in the country.

On the other hand, the IMF is seeking a clear and strong commitment from Islamabad to bring reforms in its policies amid ending the budget deficit, otherwise striking a deal appears little difficult.

Even, Jeffrey Franks, the head of the IMF’s Pakistan mission, has already indicated that.

Dar in his June 12 budget speech pledged to narrow the widest fiscal deficit in over two decades and to spur expansion in an economy he said was “shattered”.

In recently-announced 2013-14 budget, the finance minister adopted some moves in accordance with the IMF demands including bringing in additional levies, raising the sales tax and eth power tariff.

The IMF is urging the government to withdraw all subsidies that could be disastrous for the already poverty-stricken public.

Islamabad is also seeking 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 the 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 eight percent higher than the debt stock at the end of the last fiscal year, according to the Economic Survey of Pakistan 2012-13.

Public debt as a percent of GDP reached 59.5 percent of the GDP by the end of March compared to 59.8 percent during the same period last year.

Things remain equally challenging on the external front where the foreign exchange outflows outstrip foreign inflows, putting immense pressure on the exchange rate and drawdown on official foreign currency reserves.