ISLAMABAD, April 23: The International Monetary Fund (IMF) has offered about $5 billion Extended Fund Facility (EFF) at higher interest rate, short disbursement and longer repayment period to help Pakistan repay its debt and to support its balance of payments position.
Speaking to journalists on his return from Washington after a week-long visit, Prime Minister’s Adviser on Finance Dr Shahid Amjad Chaudhry said talks with the IMF “went extremely well” and the fund’s attitude was “extremely positive and keen to engage with the new government in a dialogue”.
Mr Chaudhry said his delegation had neither signed any deal with the IMF nor it finalised anything because it was the prerogative of the elected government. “We were in a listening mode and hope the new government will have sufficient range of options to proceed further,” he said.
If the new government wishes an IMF mission will come to Pakistan in June for discussing an agreement on a programme that is doable in Pakistan’s circumstances for disbursements by the coming summer.
The adviser said he had discussed broad engagement and ways of handling IMF-Pakistan relations and the choice of the programme.
He said the IMF offer had disbursement period of 3-4 years and repayment period of 5-10 years.
“This gives flexibility” to the new government to overcome structural weaknesses because the repayment — about $1bn per annum — has to start after disbursement.
Unlike Standby Arrangement’s interest rate of 15-30 basis points, the EFF programme has an interest rate of 200-300 basis points over and above the market-related interest linked with special drawing rights.
He said he was not fully in the picture about reconciliation of dues from the coalition support fund (CSF) currently being discussed by Finance Secretary Dr Waqar Masood Khan who was expected to return on Wednesday.
He said the choice of instrument of Standby Arrangement in 2008 was wrong and overloaded with conditions, although well-intentioned, because it envisaged heavy repayments soon after disbursement.
Responding to a question about the possible run on banks as a result of declining reserves, the adviser said Pakistan was a unique country that had never defaulted in its debt obligations to any local or international lender or the private sector and was still capable of paying back its debt on time.
Mr Chaudhry said the two sides also “agreed in principle” that other international financial institutions (IFIs) like the World Bank and the Asian Development Bank would be requested to discuss programme assistance separately with the new government.
He said the outcome of the discussions with the IMF would be presented to the prime minister and the cabinet and then discussed with political parties so that their views could be incorporated in the draft budget document for the next financial year.
Mr Chaudhry said national economy had performed reasonably well and the current estimates of economic (gross domestic product) growth rate are 4 per cent which showed the economy was recovering. He said the finance ministry was still working on the fiscal deficit estimated to range between 6.9 per cent and 7.3 per cent of GDP during the current fiscal year.
The worrying thing was that Pakistan has to repay about $850 million to the IMF in May and then substantial amounts in July and September. Therefore, foreign exchange reserves would remain constrained and the challenge of inability to meet these obligations would be there until August.
He conceded that the economy faced “multiple challenges” and the immediate risk was of energy crisis built on usual structural problem where receipts on account of sale of electricity were substantially low, involved heavy subsidies and huge system losses.
“The problems relating to power sector inefficiencies and low tariff have to be remedied.”
He said the ministry of finance would strive to keep the economy stable and transfer it to the new government in as stable a condition as possible and meet requirements of the petroleum ministry for importing oil for the power sector.
He said if handled properly the system had the strength to maintain its course and whatever restructuring was required would have to be faced by the upper class without affecting the poor sections.