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IMF Approves $596 Million For Pakistan
By Stephen Coates
ISLAMABAD (AFP) - The International Monetary Fund (IMF) has approved stand-by loans worth $596 million until the end of September 2001 to pull Pakistan back from the brink of default on its huge foreign debts.
Pakistan will immediately have access to $192 million, marking the resumption of IMF assistance after it was suspended almost two years ago when the ousted Nawaz Sharif government failed to reach its economic targets.
Sharif was ousted in a coup in October last year and the new military-led government under General Pervez Musharraf has pledged to rebuild the economy, which is staggering under some $38 billion in foreign debt.
Pakistan has foreign reserves of only about one billion dollars and an interest bill on its foreign debt amounting to some six billion dollars next year.
IMF officials said the fund supported the Musharraf regime's "adjustment program," which includes a four-billion-dollar privatization drive and a tough tax crackdown to reel in the massive black economy.
"The Pakistani authorities have put in place an economic adjustment and reform program, for which financial support under a stand-by arrangement has been approved by the fund's executive board," IMF managing director Horst Kohler said in a statement posted on the Internet.
"The program aims to move Pakistan on to a high and sustainable growth path by strengthening the balance of payments position, rebuilding official reserves, and reducing public sector indebtedness."
Pakistan had earlier been hoping for a much larger IMF lifeline of up to $2.5 billion but analysts said the stand-by facility would be enough for the time being.
Letters of intent were passed between the IMF and Islamabad earlier this month, prompting Finance Minister Shaukat Aziz to immediately begin talks on further debt rescheduling with the Paris Club of international creditors.
"It's a huge hurdle that's been crossed given the difficulties Pakistan has faced in the past 18 months from the international financial institutions," ABN AMRO (Pakistan) chief economist Sakib Sherani said.
"But on the other side, Pakistan will be under increased surveillance and it will not be plain sailing from here," he said, noting that the short-term facility was not the vote of confidence Pakistan had sought.
At the top of its commitment with the IMF, Pakistan had agreed to cut the budget deficit to 5.2% of GDP in 2000-2001 from 6.4% this financial year, Kohler said.
He said "the successful implementation of the program ... together with key initial steps could pave the way over time for medium-term financial support."
The Asian Development Bank and the World Bank would also consider adjustment loans in support of Pakistan's reforms, Kohler said, adding that the Paris Club would examine requests for debt rollovers in January.
"The budget target is to be achieved through increased tax collections with a widening of the tax base, improved tax administration and strict expenditure controls," he said.
"Since there is significant uncertainty surrounding the short-term impact of revenue measures on the budgetary position, the authorities should stand ready to take additional measures if revenues fall short of expectations.
"Looking forward continued improvement in revenue performance will be crucial for reducing the public debt burden and allowing more resources for tackling poverty on a lasting basis."
He said the rupee's exchange rate would have to be "competitive and market-driven."
The local unit was declined from the U.S. dollar in July and has since plunged to around 60 from 52.30 to the dollar, raising concerns about inflation and the price of imports.
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