IMF to scrutinise Pakistan’s loan repayment capacity

ISLAMABAD: Just ahead of another repayment to the International Monetary Fund (IMF) due next month, the Fund mission led by Jeffrey Franks, will kick-start scrutinising Pakistan’s capacity to repay its outstanding loans to the Fund and other creditors without the possibility of a default from today, during their 12-day stay in Islamabad, said sources.

The tenth installment, to the tune of $500 million, will be due to the IMF on Feb 26, 2013. Pakistan has so far repaid $2.1 billion to the IMF in nine installments against the outstanding loan of $7.8 billion under the standby arrangement programme (SBA).

“Islamabad has to pay back around $2.8 billion during FY13 depending on the rate of special drawing rights,” said an official source and added that in the next financial year Islamabad would have to repay $3.4 billion to the IMF. Hence, there would be no option but to seek a fresh bailout package from the IMF to remove the possibility of default.

The upcoming mission of the IMF would stay in Islamabad from January 8 to 20 to hold two rounds of talks. During the first round, technical talks would be held and then at the policy level talks Pakistan’s Finance Minister Dr Abdul Hafeez Sheikh would lead the country’s economic team.

In the aftermath of getting $688 million from the US in shape of Coalition Support Fund (CSF), which would help avoid the eruption of a balance of payment crisis till the end of the tenure of Pakistan Peoples’ Party (PPP) till March 2013, the fear of pressures surfacing on the exchange rate front would start reappearing again in context of heavy repayments due in Feb/March period and then again in May 2013.

Against the budgeted amount of $1.5 billion in shape of CSF, Pakistan received around $1.8 billion, indicating that it received an additional $300 million as non-tax revenue.

However, there were major slippages expected on account of materialisation of the much awaited auction of 3G licences, $800 million installment from Etisalat on account of PTCL privatisation proceeds and $300 to $500 million as Eurobond during the current financial year.

“So the budget deficit cannot be controlled by less than 6.5 percent of the GDP at any cost, keeping in view reckless expenditure by the government to please voters,” said an official source.

However, an independent economist Dr Ashfaque Hassan Khan believes that the budget deficit would stand within the range of 8 to 8.5 percent of GDP by end June 2013.

Pakistan fell into the Post Programme Monitoring (PPM) category because of the government’s decision to avail maximum funding from the IMF resources at the first stage, which was later on augmented to $11.3 billion from the initial package of $7.6 billion, under an unsuccessful SBA programme.

“In accordance with the fund policy, the managing director of IMF recommends the initiation of PPM. Outstanding Fund credit to Pakistan exceeds the 200 percent of quota threshold for PPM, and there are no exceptional circumstances that would indicate that PPM is not warranted,” said the last IMF staff report. In addition, Pakistan is an exceptional access borrower from the fund and, therefore, an ex-post evaluation had already been done.

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