Islamabad likely to seek $5-6b package

Discussion in 'Pakistan' started by Daredevil, Mar 19, 2013.

  1. Daredevil

    Daredevil On Vacation! Administrator

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    ISLAMABAD - Pakistan and International Monetary Fund (IMF) would hold talks next month (April) in Washington wherein Islamabad might seek fresh bailout package to avert a crisis of balance of payments, it has been learnt.

    “Pakistan and IMF will hold sideline meeting at the annual spring meeting of World Bank/IMF in Washington next month. The caretaker government will decide to seek fresh bailout package from the Fund as we cannot say it now”, said Rana Assad Amin, spokesperson and advisor to the Finance ministry while talking to The Nation on Thursday. The policy-steering bodies of the IMF and the World Bank (Development Committee) will hold their semi-annual meetings on April 20.

    However, sources in finance ministry and economic experts believed that caretaker government is likely to seek fresh programme worth of $5 to $6 billion to avert a crisis on balance of payments, as foreign currency reserves are sharply depleting due to heavy repayment to the IMF. Pakistan’s overall liquid foreign exchange reserves fell to $12.805 billion on February 28 2013 wherein reserves held by the State Bank stood at $7.861 billion and reserves held by commercial banks stood at $4.944 billion. The foreign exchange reserves might decline to $7.5billion to $8.5billion at the end of the current fiscal year, 2012-2013 due to a heavy repayment to the IMF.

    Sources said that IMF is expected to include conditionality such as greater revenue generation by the abolishment of income tax, sales tax, federal excise duty and customs duty exemptions besides the containment of losses incurred by public sector enterprises and the power sector for the new loan agreement.

    During the last talks, the IMF team is said to have insisted on the reduction of the budget deficit by 1.5 percent of GDP over the medium term through policy measures that generate revenue and cut expenditures.

    Pakistan has paid over $3.2 billion to the IMF putting pressure on the already depleting foreign exchange reserves. The country’s external account is under extreme pressure since the inflows were negligible during the year 2012, while outflows eroded the reserves. The remaining amount due under the IMF/SBA (standby arrangement programme) until September 2015 is $3,239million. The remaining repayments to the IMF and other international financial institutes would certainly hit the country’s external position with weak reserves and sharply declining foreign investments.

    The government is repaying the loan, $7.6 billion, taken in 2008 under the SBA, which was increased to $11.3 billion, but the country was not eligible for the last two disbursements of $3.2 billion due to its failure to comply with the performance criteria. The government failed to bring reforms to the General Sales Tax (GST) and the power sector, which became the reason behind of the suspension of the programme.

    Sources said in the next financial year, Islamabad would have to repay $3.4billion to the IMF. Hence, Pakistan would have no option, but to seek a fresh bailout package from the IMF to remove the possibility of a default.

    nation.com.pk/pakistan-news-newspaper-daily-english-online/business/15-Mar-2013/islamabad-likely-to-seek-5-6b-package

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    Out comes the begging bowl :rofl: :rofl:
     
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  3. Daredevil

    Daredevil On Vacation! Administrator

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    Pakistan’s state of denial - Khaleej Times

    There seem to be two conflicting views about the state of Pakistan’s economy.
    The first shared by most independent economists and analysts is that the worsening fiscal and balance of payments deficits warrant urgent corrective action otherwise the country will head inescapably into an economic crisis.

    The second view held mainly by the government’s economic managers is that there is no near term risk to the economy or looming crisis and they can continue with business as usual. This helps to explain why in its last days in power, the government has gone on a pre-election spending binge, which will leave public finances in complete shambles.

    In recent public statements the governor of the central bank and finance minister have both chosen to downplay the threat posed to financial stability by the country’s critical balance of payments situation for which the evidence is overwhelming. Both insist Pakistan has enough foreign exchange reserves to meet its external debt obligations so there is little reason to worry. It seems to escape both of them that a crisis doesn’t wait to erupt when foreign exchange reserves fall to zero. It can happen when the reserve level dips so low as to spark panic in the market and send confidence plummeting. This is not a hypothetical scenario. It unfolded not long ago in the 2008-09 balance of payments crisis. In fact, at several points in the 1990s Pakistan was unable to meet its external financing requirements and repeatedly sought IMF help to avert external debt default.

    The facts are clear about the present precarious situation. Last week reserves held by the State Bank fell to $ 7.8 billion. This offers no assurance that the country can avoid a balance of payments crisis when capital inflows have dried up, foreign direct investment has plunged to the lowest ever level and debt payments loom.

    In the next fiscal year $6.2 billion in debt service payments will be due to the IMF and other creditors by which time reserves would have dipped below $6 billion and with the trade gap also needing to be financed. Confidence could vanish quite quickly when the market perceives that the country’s financial requirements far exceed its foreign exchange resources. No one can accurately predict when such an inflection point could be reached. But no responsible government would want to wait for that to first happen and then respond to a runaway crisis.

    To compound an explosive budgetary situation, the government has also gone on a no-holds-barred spending spree in its last days in power. This is reflected in a number of fiscally irresponsible decisions taken in recent weeks, mostly by the cabinet’s Economic Coordination Committee, which met four times in just over a fortnight — unprecedented in Pakistan’s economic history.

    The decisions are too numerous to list. But the more egregious ones include:

    Subsidy for sugar exports, which will cost the exchequer at least Rs 3 billion a year — and benefit a politically powerful lobby.
    Reduction of electricity charges for agricultural tube wells. This transparent bid to win rural votes will drain budgetary resources of Rs 16 to 20 billion a year.
    Rs 10 billion increase in the Public Sector Development Plan, which will be channeled into various politically motivated schemes to win electoral support.
    Rs 48.5 billion doled out last month to the unreformed power sector when the average monthly cost of subsidies to the exchequer is Rs 20 billion. This advance payment has been made without explanation at a time when recoveries have substantially declined.
    Rs 100 billion bailout for the national airline with no credible restructuring of the ailing company in place.
    Another substantial pay rise for government employees, which will cost the exchequer Rs 7-8 billion a year. This comes on top of previous increases in the past five years, cumulatively amounting to 120 per cent.

    This fiscal profligacy comes at a time when government revenues have plummeted.

    If the resultant larger fiscal deficit continues to be financed by more borrowing the consequences are inescapable — higher inflation and addition to an unsustainable domestic debt. This is already part of the explosive economic legacy being bequeathed to the next government by the PPP-led coalition — contrary to the government’s ‘all is well’ claims. With the fiscal problem feeding into the increasingly shaky external account, the question is not if but when the country will face a foreign exchange crisis — unless urgent action is taken to avert this.

    Dr Maleeha Lodhi served as Pakistan’s ambassador to the US and United Kingdom

    Pakistan’s state of denial - Khaleej Times
     
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  4. Yusuf

    Yusuf GUARDIAN Administrator

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    There was talk in Pak to kick the IMF and not age to back to it. Pakis on forum world atleast think that all Nom Resident Pakis can easily make up for revenues required.
     
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  5. sayareakd

    sayareakd Moderator Moderator

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    they will only make more nukes, missile and terrorists.
     
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  6. Blackwater

    Blackwater Veteran Member Veteran Member

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    Last i have heard their stock market is best performing and all time high:confused::confused::confused::rofl::rofl:

    and pak does not want any relation with USA:pound::pound:
     
  7. farhan_9909

    farhan_9909 Tihar Jail Banned

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    First we need to seek some odd 10billions from imf for our nuclear program..
     
  8. arnabmit

    arnabmit Homo Communis Indus Senior Member

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    That's why Pakis have now ventured into Piracy-at-high-seas program in collaboration with the Somalians

    :truestory:
     
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  9. Daredevil

    Daredevil On Vacation! Administrator

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    Birds of same feather flock together :lol: :truestory:
     
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