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Pakistan-IMF talks on for $5-billion bailout package

A Alam Haider in Islamabad

Pakistan and the International Monetary Fund open crucial talks next week for a $5-billion bailout package, including low-interest credit and 'considerable' debt rescheduling by the Paris Club, the South Asian Dispatch Agency reported.

Pakistan, to sustain a huge annual debt and interest repayments on its $37 billion foreign loans, requires a three-year debt rescheduling by the Paris Club and a low-cost IMF facility under the Poverty Reduction and Growth Facility.

Under the ongoing Standby Arrangement facility, Pakistan, despite public resistance, has implemented a tough reforms program by deregulating public sector utilities, increasing rates of power, gas, and petroleum products, withdrawing subsidies, hiking daily use items, and taxing small businesses and all agricultural inputs.

The SBA is a short-term facility with about six percent interest rate. Under the long-term PRGF, Pakistan will have to pay 0.75 percent service charges, but will have to enforce strict conditions. These conditions will be negotiated in the rounds of talks to be held next week.

"The package is going to be a couple of billion dollars in cash over a certain period of time," sources said, "plus a considerable debt rescheduling of around $3 billion by Paris Club."

A three-member advance team has already arrived in Islamabad to gather technical data about Pakistan's macroeconomic situation. On Monday, the IMF team held a meeting with chairman of the Central Board of Revenue Riaz Malik to discuss issues of revenue collection and the CBR restructuring plan.

The IMF's outgoing senior resident representative to Pakistan, Ahsan Mansur, also held a meeting with Finance Minister Shaukat Aziz on Monday.

Another three-member IMF team will arrive on August 15 and policy-level talks will commence from August 20 with the arrival of mission chief, Klasue Andres.

After holding preliminary talks for the PRGF, and final review under the SBA, the IMF mission will leave for Washington on August 29. The package is unlikely to be approved until October, the sources said.

Pakistan's Finance Minister Shaukat Aziz will lead a team of economic managers to Washington in September to finalize the package with IMF officials. He will also attend the annual meetings of the IMF and World Bank.

Compounded by problems of weak foreign exchange reserves and lower growth in exports and workers remittances, Pakistan requires around $5 billion every year to continue to service its foreign debt and interest liabilities.

By the year 2004, Pakistan will have to pay back a whopping $22 billion in debt and interest payments, which is equivalent to the country's total exports for 27 months. Last fiscal year, Pakistan's 85 per cent tax revenue (or 55 per cent of the total resources) went into debt servicing, leaving little for development, defence, and running of the government.

Though a poor 2.6 per cent economic growth this year torpedoed CBR's tax collection cruise, Pakistan has largely been successful in meeting tough macroeconomic targets set by the IMF under a 10-month SBA.

Although the $596 million SBA, agreed with the IMF in November last year had provided Pakistan much-sought-after breather, independent economists believe, the harsh conditions tagged to the IMF facility had knocked Pakistan's economy out of breath.

Indo-Asian News Service

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