Pakistan, IMF agree to $5.3bn bailout package
05 July, 2013
ISLAMABAD: The International Monetary Fund and the government have agreed to a $5.3 billion fresh three-year loan programme, titled "Extended Fund Facility".
The loan has a repayment period of 10 years, with first four years being grace period without any repayment. However, the $5.3 billion loan is 348% of Pakistan's quota in the IMF, and the Ministry of Finance has requested the IMF mission to increase it to 500%, enabling the country to get $7.3 billion under the fresh loan programme (EFF). Prior actions have been agreed with the IMF mission and after their implementation, the IMF authorities would submit Pakistan's loan programme for approval before the Executive Board in first week of September.
IMF mission chief Geffrey Franks and Finance Minister Ishaq Dar announced the outcome of the two-week-long talks in Pakistan during a joint media briefing. While terming conditionalities agreed with Pakistan as difficult, Franks said that the Pakistani government would be required to implement fiscal measures like imposition of more taxes and withdrawal of tax exemptions, increase in power and gas tariffs, elimination of power tariff subsidies and privatisation or re-structuring of public sector enterprises in the agreed timeframe.
Approval would be required for these prior actions from the Council of Common Interests, which is headed by the prime minister and in which all the four provincial chief ministers are represented, Franks added. He said some hard decisions have been announced in the budget and some would follow, as the new loan programme is based on Pakistan's homegrown reforms on the fiscal side, in power and energy sector as well as public sector enterprises.
As part of the loan agreement, Franks added, the Pakistani government has developed plans to improve tax collection and eliminate tax loopholes and exemptions. It also had a programme to restructure and even privatise public sector enterprises, which would generate significant revenues. "The overall focus on this programme is to boost economic growth so we can have a better future for all Pakistanis," he said. "There will be some difficult decisions... but these will be necessary decisions to make sure that the economy is stable going forward."
While strongly objecting to the "Revival of Kashkool Culture" comment, Ishaq Dar said that the government is not going to utilise this loan, rather it would be used for the repayment of the Stand-By-Arrangement loan obtained by the PPPP government. The finance minister said there was no option but request the loan to save Pakistan from defaulting.
"We have not carried the begging bowl in our hands nor are we getting a grant, Pakistan is a member of IMF," Dar said. "The government of Pakistan and International Monetary Fund have reached an agreement for a three-year programme of at least 5.3 billion dollars under an extended fund facility," Dar said.
The minister said that the government would like disbursement of loan instalments as and when repayments of past loans arise so as to avoid pressure on the country's foreign exchange reserves and stability of exchange rate. He explained that the fresh loan programme aims at stabilising Pakistan's economy and creating an enabling environment for revival of growth, fiscal consolidation, containment of inflation, resolution of energy crisis, including settlement of circular debt, promotion of social safety nets, strengthening of financial sector, improvement of business climate, promotion of foreign direct investment, strengthening of foreign exchange reserves with stability of exchange rate.
"We have negotiated a programme which is homegrown and entirely of our own making as was reflected in the recently announced budget 2013-14," said Dar, adding that the reforms agenda is largely in conformity with the manifesto that the PML-N announced before going into general elections this year.