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June 20, 2013

No free lunch this time, IMF tells Pakistan

June 20, 2013

ISLAMABAD: The visiting IMF mission, headed by Jeffery Franks, on Wednesday communicated to Pakistan in plain words that no free lunch would be offered this time.
In talks with Finance Minister Ishaq Dar, the IMF officials clearly said soft terms for the next bailout package could only be extended after reviewing the country’s economic health and the assurance that plans of the government to stabilise the macro-economic indicators would materialise through a credible mechanism.
“If the IMF is not satisfied, then a bailout package will be offered with strict conditions,” said a senior official who was part of the negotiations with the visiting IMF mission. Pakistan and the IMF here on Wednesday initiated the crucial talks on the ailing economy and discussed the way forward keeping in view the proposed budget of the government.
The Fund has also asked the federal government to include the four provincial governments in the policy level talks with the Fund, as they have become major partners to the economy and major shareholders of the revenue resources.
Under the NFC Award, the provinces will get about Rs1.5 trillion from the Divisible Pool, so they should be a part of the negotiations as not only they could give ownership to any agreement with the Fund but also show economic discipline to achieve the ambitious target of budget deficit of 6.3 percent in 2013-14.
Finance Minister Ishaq Dar led Pakistan’s team and marketed the proposed budget with 2.5 percent cut in the budget deficit to 6.5 percent by reducing the expenditures by 30 percent and tax measures to generate revenues up to Rs2,475 billion.
The officials of the ministry, who remained tight-lipped about the talks, however, said that the IMF had appreciated the government bid to slash down the budget deficit by 2.5 percent in 2013-14 and substantially reduce the subsidies in the power sector. The government officials also said that the Fund also appreciated the government plan to

reduce the fiscal deficit up to four percent in the next three years.
However, according to independent sources, the IMF questioned the rationale of 50 percent increase in the federal share up to Rs540 billion in the development budget that stands at Rs1.155 trillion given the fact that the country has no fiscal space.
They also asked from what source the government would finance the fiscal deficit of 6.3 percent, which is on the higher side, and with the increase in salaries the fiscal target would become even more difficult to achieve.
Independent sources said Pakistan would formally ask the Fund in the next 3-4 days for over $4.5 billion loan programme to pay the remaining installments under the loan of $7.5 billion that Pakistan had earlier borrowed. However, officials of the ministry are tight-lipped.
The IMF mission comprising 8-10 officials is visiting Pakistan under the PPM (post-programme monitoring) to assess the ability of Pakistan to pay back the loan. The mission will stay in Pakistan for 10 days and will look into the data the government will share with it about all sectors of the economy. The mission will then report to the Fund’s executive board and in the light of the report, it will initiate talks for another loan programme for Pakistan some time in July next.

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