IMF Announces Staff Level Agreement with Pakistan on US$7.6 Billion Loan


Press Release No. 08/285

November 15, 2008

Mr. Dominique Strauss-Kahn, Managing Director of the International
Monetary Fund (IMF), issued the following statement on Pakistan today:

“IMF staff and the Pakistani authorities have reached an agreement
in principle on the key elements of an economic program to be supported by an SDR 5.17 billion (about US$7.6 billion) 23-month Stand-By Arrangement, subject to the approval of the IMF Executive Board.

The Executive Board is expected to meet to discuss the program shortly under the Fund’s Emergency Financing Mechanism procedures.

“The Pakistani authorities have developed a policy package to help
the country meet its serious balance of payments difficulties. The
authorities’ program has two main objectives: (i) to restore the
confidence of domestic and external investors by addressing
macroeconomic imbalances through a tightening of fiscal and monetary policies; and (ii) to protect the poor and preserve social stability through a well-targeted and adequately funded social safety net.
Both objectives are an integral part of Fund support for Pakistan.

“The IMF is prepared to help Pakistan by providing a high level of
financial support on the order of 500 percent of the country’s quota in the Fund. This support is part of a broader package that includes financing from other multilateral institutions and regional development banks. I would like to call on the donor community to work together and act quickly to support Pakistan’s program in order to mitigate the impact of the current economic difficulties on the poor and ensure an adequate level of spending on development programs,” Mr. Strauss-Kahn added.

Reuters has reported today quoting Shaukat Tarin, economic advisor to the Prime Minister that the agreement will be finalized within a week.
Tarin said the interest rate would be between 3.51 and 4.51 percent,
and payments would be due between the fiscal years 2011-2012 and
2015-2016. As part of the deal, the Pakistani government agreed to
reduce excessive borrowing from the central bank and boost its tax
base, but no cuts in defense is demanded by IMF.

Earlier there were rumors that IMF wants Pakistan to decrease the defense spending besides increasing the interest rates and eliminate the subsidies on fuel and power. Government of Pakistan has already complied with increased interest rates from 13 percent to 15 percent and removed the subsidies from fuel and power. That has already created an up roar against the Zardari government in Pakistan. Zaradri came to power to provide roti, kapra and makaan, (food, clothings and shelter). The problem is government is spending very lavishly on non-productive expenses and they are borrowing heavily from the Central Bank. Dr. Shamshad Akhtar stated that in her recent press conference that governemnt has to reduce their expenses. I don’t think Zardari and Gilani will listen to her but they will be forced by IMF.

Pakistan got this loan from IMF because of the blessings of the US government. Amercia had a big say in this deal. Zardari’s position is extremely weak in the country and outside the Pakistan. Nobody trusted Pakistan government becuase they did not have any action plan to show for circumventing the current financial crises in the country. Therefore, as a result Saudi Arabia, China and so-called Friends of Pakistan did not extend any financial help (loan in the form of cash) to Pakistan.

To establish some credibility at the behests of US government, Dominique Strauss-Kahn, Managing Director of the International
Monetary Fund has mentioned in his statement that other donors should also come forward and help Pakistan. This is for encouragement to other donors that IMF will keep an eye on Zardari’s spending of loan money which other wise nobody trust him.

Are things going to get better in the country. Not really. All this IMF thing is done to avoid bankruptcy.