About $4bn IMF loan likely

November 24, 2008

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WASHINGTON, Nov 23: The executive board of the International Monetary Fund will consider a $7.6 billion rescue package for Pakistan on Monday to help the country avoid an economic collapse.

The board is likely to approve the package the same day as there seems to be a consensus in Washington that it’s in everybody’s interest to move rapidly to prevent an economic implosion in Pakistan.

If the rescue package is approved by Monday afternoon, the necessary documents allowing the transfer of money to Pakistan can be signed the same day.

Pakistan is likely to get between $3.5 billion and $4 billion initially while the rest will be distributed in six equal instalments.

After the approval the money will be transferred to the State Bank of Pakistan’s account in the US Federal Reserve in New York. The disbursement takes 48 to 72 hours, which means that Pakistan will have the money by Thursday.

This expected rapid disbursement enjoys the support of the US administration which wants to help Pakistan arrest the current economic deterioration as soon as possible.

But Pakistan experts in the US administration, as well as the World Bank and the IMF, also want Islamabad to make structural adjustments to set their economy in the right direction.

In a joint article for Washington’s Middle East Institute, former US ambassador to Islamabad Wendy Chamberlin and a former IMF economist Zubair Iqbal argued that “a rescue plan could have the advantage of presenting an opportunity to force countries like Pakistan to come to grips with entrenched structural distortions in its economy”.

The two authors also argued that countries like Pakistan could not count on the cash from wealthy oil producers in the Gulf for a bailout. Instead, they urged “a more organised approach” to aiding “distressed economies”.

The authors proposed establishing a trust fund made up of multilateral and regional lending agencies, selected GCC countries, and the G-7 to pool resources and facilitate their effective use by vulnerable counties under the IMF/World bank guidance.

The two authors and other experts are also urging Pakistan to reduce expenditure and increase revenue if it wants to have a stable economy. But they also acknowledge that it may be difficult for a political government to reduce expenditure as such steps are unpopular and may cause political repercussions.

So they want Pakistan to increase revenue. “It is particularly difficult to reduce expenditure when the economy is slowing, the private sector is upset and the government has just increased interest rate,” said one such expert.

“So it is essential to increase revenue.”

And when such experts talk about the need to increase revenue, they emphasise the need to introduce agriculture income tax which, they argue, will also raise domestic savings.

They reject Pakistan’s claim that they have introduced agriculture income tax. The experts argue that the taxes introduced in the name of agriculture income tax six or seven years ago were simply the land revenues which are being collected since the British days.

“When we talk about agriculture income tax, we mean agriculture income tax and not an old medicine with a new package,” said an expert.