Economic realities - III
Another successful policy offensive of the government has been the agreement with the IMF for a bailout package of US $5.3, which according to some latest report is likely to be increased to US $6.6 billion. The significance of clinching this deal lies in the fact that Pakistan badly needs an overall financing requirement from external sources to the tune of $11.5 billion during the current fiscal year.
Copyright Business Recorder, 2013
To meet these requirements, Pakistan is also contemplating approaching the World Bank and the Asian Development Bank to raise $4.7 billion besides envisaging $4 billion through private investment and privatisation proceeds. Pakistan already owes a payment of US $3 billion to the IMF this year from the previous loan and the new loan will mostly be utilised to pay for that. As the finance minister explained, had the deal not been concluded Pakistan was likely to default on the previous loans with all the accompanying disastrous consequences. The government unlike the previous regime rightly decided to approach the IMF for the new arrangement which was dictated by the harsh ground realities. Apart from saving Pakistan from default on its debts, the deal will also help in stemming the confidence crisis, check capital outflows, improve foreign exchange reserves situation besides helping in easing pressure on the exchange rate.
Economic experts are of the view that the move by the IMF will also encourage other international lending institutions to extend loan facilities to Pakistan, vitally needed to tide over the economic difficulties and giving a substantial nudge to the development process. These dividends can however be realised fully by successfully carrying out the conditionalities of the IMF programme like broadening the tax base to reduce budget deficit, phasing out of SROs, reforming energy sector, retiring of circular debt, addressing fiscal issues and involving the provinces in maintaining financial discipline through generating a surplus of Rs 23 billion etc and above all to carry out structural reforms.
The government has already initiated strategies on the conditions proposed by the IMF in its budget for 2013-14 and these steps actually convinced the IMF in agreeing to the new loan facility. The IMF agreement has indeed prompted other financial institutions to come forward. Reportedly a multinational bank has offered to raise Pakistan bonds in the international market and to provide credit line for a multi-million dollar Neelum Jhelum project.