The International Monetary Fund (IMF) has agreed that Pakistan can seek a loan package worth $6.6 billion, two top Finance ministry officials said, adding that this would be a massive boost for Prime Minister Nawaz Sharif as he seeks to fix the country’s moribund economy.
The IMF had settled on an initial package of $5.3 billion after a delegation held weeks of talks in Pakistan in July. Pakistan had requested for $7.2 billion.
“The IMF has raised its offer following further consultations in the US and now agreed to $6.6 billion. The official announcement will come very soon,” a top Finance ministry official said.
The IMF’s executive board will formally approve the package for Pakistan sometime in early September, as long as Pakistan has made some fiscal reforms, the IMF website stated.
The government has already slashed costly subsidies on electricity and sent out notices to 10,000 delinquent taxpayers last month as part of the conditions set by the IMF.
Pakistan has one of the lowest tax-to-GDP ratios in the world and the IMF wants Pakistan to do more to tackle the rampant tax evasion by the country’s wealthy elite.
The Saudi Islamic Development Bank Group Ltd. has also pledged a $997 million credit line and a $200 million trade facility for Pakistan to buy petroleum products, Finance Ministry Spokesperson Shafqat Jalil said.
“We will end up with a shortfall of $600-700 million, which we will bridge through other donors like the ADB (Asian Development Bank),” Jalil said.
The ADB, one of Pakistan’s major lenders, estimates that Pakistan needs $6 billon to $9 billion to meet its obligations, including about $5 billion in outstanding debt on an earlier $11 billion IMF loan package that was suspended in 2011.
The central bank has only about $5 billion left in foreign currency reserves which is enough to cover less than five weeks of imports.
Pakistan averted a balance of payments crisis in 2008 by securing the $11 billion loan which was suspended two years ago after economic and reform targets were missed.
Chronic gas and electricity shortages, violent crime and Taliban insurgency have all hampered growth and contributed to a dramatic drop in foreign investment.
The $230 billion economy grew 3.6 percent in the last fiscal year, well below the target of 4.3 percent.
The new government has already made some steps toward these reforms by setting an ambitious deficit target of 6.3 percent growth for 2013/14, which some analysts say might be hard to meet.
