IMF rules out restructuring of Pakistan’s loan

Afzal Khan
Filed on January 20, 2013

ISLAMABAD - The International Monetary Fund (IMF) has ruled out restructuring of the existing loan to Pakistan but indicated it might consider any such request by the interim government to be set up prior to elections.

“The IMF rules do not allow restructuring of loan or postponement of repayment obligations,” IMF’s Pakistan representative Jeffrey R. Franks told a select group of journalists here.

He said the IMF estimates current year’s fiscal deficit at 7.5 per cent and external financing needs of ‘billions of dollars’.

Frank added that the fund has linked the future funding for Pakistan to “broadest and deepest” political support for upfront economic reforms and policy changes to prove the government’s seriousness.

At the conclusion of negotiations with Pakistan, the IMF adviser for Middle East and Central Asia and IMF mission chief to Pakistan said Pakistan had not formally requested yet for a new programme, but if it requested, the disbursements would follow prior policy actions for macroeconomic stabilisation.

This seemed to be a major departure from previous fund programmes under which successive governments used to get upfront disbursements for budgetary support before undertaking implementation of programme conditionalities, leading in most of the cases to premature termination of IMF programmes in the event of failures.

“Current policies need to be adjusted upfront to qualify for a new programme,” he said, adding that the IMF mission could support a new programme before its management and the executive board when right policies were there to prove that authorities had taken steps for macroeconomic stabilisation.

To achieve this, he added, Pakistan needed to take a combination of steps in the power sector and fair enforcement of taxation measures to bring down fiscal deficit to three or 3.5 per cent of GDP in two-three years.

A set of policies that could help the economy achieve that goal needed to be agreed upon, he said.

Inflation should also be seen to come down on a sustainable basis and reserves rise up to $15 billion. This would require a lot of macroeconomic adjustments through removal of bottlenecks. “These bottlenecks include correcting energy sector, followed by restructuring of public sector entities, improving business climate, better bureaucracy and improved and simple tax system,” he said.

He argued that a major chunk of the economy was outside the tax net. Some of the areas he mentioned for bringing into fair and transparent tax system included agriculture, services, retail business and withdrawal of exemptions allowed by different SROs and other legal or illegal instruments.

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