Caretakers accept IMF terms in principle

Published
6

ISLAMABAD: The International Monetary Fund (IMF) wants Pakistan to introduce major restructuring of public sector enterprises and banking sector safeguards to protect consumers and depositors in case of a financial crisis.

This is part of a proposed bailout programme the caretaker government has agreed to in principle with the IMF under an Extended Fund Facility (EFF) worth over $5 billion to be made part of draft of the budget for 2013-14 and to be signed by the next elected government.

An official told Dawn that the package involved reforms in seven key areas. Among them is restructuring of eight major public sector enterprises continuously relying on the federal budget to operate, so that they may stand on their own feet in two years for possible divestment.

The lending agency wants Pakistan to make the best use of breathing space provided by the $5bn loan to create an environment conducive to fresh private investments and issuance of international bonds so that the country’s foreign exchange reserves are built up to a level sufficient for six months of imports and a stable exchange rate may be maintained. The State Bank has been asked to take effective steps in consultation with the government to introduce safeguards in case of failure of small banks by increasing the capital adequacy ratio and possibly setting up a common fund for facing off risks of the small and medium private commercial banks.

The programme proposes that the insurance scheme for bank depositors be expanded through an effective mechanism and strengthening of the insurance sector.

The most important requirement of the new programme will be introduction of massive reforms on the revenue front for mobilising additional resources equivalent to 2.5 per cent of the gross domestic product (GDP) in three years. At the current size of the GDP, the additional resource mobilisation works out to Rs580-600bn. Of this 1.5 per cent will have to be raised during 2013-14.

Also in the list of the conditions are power sector reforms to reduce system losses and introduce market-based electricity rates with minimum subsidies.

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