ISLAMABAD: The International Monetary Fund has agreed that Pakistan can seek a loan package worth $6.6 billion, two top finance ministry officials said on Monday, a boost for Prime Minister Nawaz Sharif as he seeks to fix the moribund economy.
The Fund had settled on an initial package of $5.3 billion after an IMF delegation held weeks of talks in Pakistan in July. Pakistan had requested $7.2 billion.
“The IMF has raised its offer following further consultations in the US and now agreed to $6.6 billion. The official announcement will come very soon,” said a top finance ministry official, requesting anonymity because he was not yet authorised to speak on the record.
The IMF's executive board will formally approve the package for Pakistan sometime in early September, as long as Pakistan has made some fiscal reforms, the IMF said on its website.
The government has already slashed costly subsidies on electricity and sent out notices to 10,000 delinquent taxpayers last month as part of the conditions set by the IMF.
Pakistan has one of the lowest tax-to-GDP ratios in the world and the IMF wants it to do more to tackle rampant tax evasion by the wealthy elite.
The Saudi Islamic Development Bank Group Ltd has also pledged a $997 million credit line and a $200 million trade facility for Pakistan to buy petroleum products, said Shafqat Jalil, the Finance Ministry's spokesperson.
“We will end up with a shortfall of $600-700 million, which we will bridge through other donors like the ADB (Asian Development Bank),” Jalil said.
The ADB, one of Pakistan's major lenders, estimates that Pakistan needs $6 billion to $9 billion to meet its obligations, including about $5 billion in outstanding debt on an earlier $11 billion IMF loan package that was suspended in 2011.
The new loan will come just in time. The central bank has only about $5 billion left in foreign currency reserves, enough to cover less than five weeks of imports.
Pakistan averted a balance of payments crisis in 2008 by securing the $11 billion loan, but this was suspended two years ago after economic and reform targets were missed.
Chronic gas and electricity shortages, violent crime and a Taliban insurgency have all hampered growth and contributed to a dramatic drop in foreign investment. The $230 billion economy grew 3.6 per cent in the last fiscal year, below a target of 4.3 pe rcent.
The new government has already made some steps towards reforms and has set an ambitious deficit target of 6.3 per cent growth for 2013/14 – although some analysts say that might be hard to meet.
It also plans a new energy policy to tackle power cuts, which frequently last 12 hours a day and have devastated the economy and fuelled unrest.