Pakistan to seek new IMF funds

03/05/2009 | Taimur Ahmad

Finance chief confirms imminent move to shore up balance of payments

Finance chief confirms imminent move to shore up balance of payments.
Pakistan is seeking additional funds from the IMF to shore up its foreign currency reserves and boost its fiscal position, the country’s finance chief has confirmed.
Shaukat Tarin, finance adviser to Pakistan’s prime minister, told Emerging Markets in an interview that the government is in talks with the Washington lender for “$4-6 billion” in extra funds, expected “in the next two to three months”.
Pakistan agreed in November to an IMF emergency loan package of $7.6 billion over 23 months, to avert a balance of payments crisis and strengthen its reserves.
Tarin, the country’s de facto finance minister, said that while the government’s “major thrust” is to increase revenues, “for the short term, two to three years, we will also seek additional help from the multilateral agencies and they are willing to do that.”
He added: “I would like to have some additionality from the IMF, which is not only going to boost our reserves but is also going to increase our fiscal space. That’s what we are looking at.”
Tarin added that the details on the new funding will be finalized “as soon as we can.” This could happen following an IMF review, which begins tomorrow in Dubai.
While Tarin estimated $4-6 billion is needed, local press reported this week that Pakistan will seek an additional $4.5 billion.
Pakistan received $3.1 billion upfront under November’s standby arrangement with the IMF, and a further $847 million was made available following a March 31 review. The IMF declined to comment on the prospect of additional funds, which the Fund’s board must first approve. Tarin said November’s IMF programme “really brought back some discipline which we were lacking.” He added that the goal now is to put “money on the table for development, to create more revenue, and to create some fiscal space in the interim with the help of multilateral agencies”.
Tarin’s comments follow aid pledges at a recent donors’ conference in Tokyo for $5.3 billion, including $1 billion each by the US and Japan. Tarin said he was “more than happy” with the outcome, which exceeded the $4 billion the government had sought.
Tarin emphasised the government’s focus on structural reform, in contrast to previous practice. “Every time we have received foreign aid, we have forgotten about the structural weaknesses.”
But it remains unclear where, or on what, the aid could be usefully spent. The timing of disbursement also remains uncertain, adding urgency to Pakistan’s latest IMF request.
US Secretary of State Hillary Clinton on Wednesday urged US lawmakers to approve $497 million in emergency aid for Pakistan. But the Obama administration faces an uphill struggle convincing a sceptical Congress to triple US economic assistance to the country to $ 1.5 billion annually. A bill to increase funding is expected to be presented in the US Senate within days.
Pakistan’s economy is gradually recovering from severe economic problems in 2007/08 – many of which predate the global economic crisis – and is forecast to expand 2.5% in the 12 months ending June 30, the slowest pace in eight years. Tarin forecasts growth at 3.5% next year, rising to at least 4% in 2011.
Tarin said that a growth rate of more than 6% is needed “to ensure not only that poverty doesn’t increase, but also to reduce poverty.”

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