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Thursday, 31 August, 2000, 14:37 GMT 15:37 UK
Pakistan may get emergency funds
Lahore beggars
Beggars in Lahore: The economic situation has been worsening
By Nadeem Malik in Islamabad

Pakistan may get emergency financial support from the IMF to cover an increasingly serious balance of payments gap.

Talks with the IMF, which have been continuing intermittently over the past year, are likely to resume next week.

Reserves have gone down
This exceptional financing, under the IMF's Stand-By Arrangements (SBA), would also include provisions for further debt rescheduling from official bilateral and commercial creditors for the next year.

The IMF has noted some progress in discussions with Pakistan.

"The Executive Board of the IMF reviewed the current state of Pakistan's economy on Tuesday in Washington, and noted that most of the agreed prior actions have been complied with," said official IMF sources after the board meeting.

These pre-conditions were relating to flexibility of the exchange rate, rationalisation of utility prices and introduction of a broad-based General Sales Tax on the service and retail sectors.

Power dispute

However, a resolution of disputes with the Hub Power Company, which was also an important benchmark for resumption of IMF money, still remains unresolved.

Main issues
Exchange rate flexibility
Utility price rationalisation
Introducing a sales tax

The country desperately needs IMF support to cover a $5bn financing gap in its balance of payments.

Loss of business confidence, an absence of foreign direct investment (FDI) and a growing trade deficit have made the country more vulnerable to external shocks.

A deal with the IMF would enable Islamabad to stabilise its reserves, which have gone down to $1.109bn, including $450m of private foreign currency deposits.

Tom Dawson, the IMF media head, said on Tuesday that there were broader issues that the IMF needed to be satisfied with before a loan could be extended.

"As you may recall, there have been some concerns about the quality of the accounts there. I mean, it is still a relatively new government there, particularly on the finance side, and it takes a while to get things started again," he stated in a news conference.

'Over ambitious'

Independent economists reckon that the IMF will urge the authorities to rationalise their revenue and expenditure budgets to ensure that the fiscal deficit remains within sustainable limits.

Pakistan has a target budget deficit of 4.6% on the basis of 25% tax revenue growth, which the IMF says is an over ambitious assumption.

The IMF is also expected to stress the need for effective documentation of the economy to bring in the widely undocumented retail and agriculture sectors that constitute over half of GDP.

Pakistan has not been able to draw a single tranche from the IMF since May 1999 due to slippages in policy implementation and political and strategic difficulties with the G-8 countries over nuclear non-proliferation, terrorism and Kashmir.

Senior diplomats in Islamabad suggest that a short-term IMF breather under the Stand-By Arrangements is meant to avert a default threat

It would also allow Islamabad to sort out broader economic and strategic issues with the international community.

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See also:

12 Apr 00 | South Asia
Pakistan fails to satisfy IMF
06 Apr 00 | South Asia
Pakistan's IMF talks 'on course'
02 Dec 99 | South Asia
IMF in crucial talks with Pakistan
14 Oct 99 | The Economy
Pakistan closes its banks
14 Oct 99 | The Economy
Pakistan's economic nightmare
28 Jul 99 | South Asia
Pakistan: Disappointment over IMF talks
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