Three-year program subject to approval within IMF, and requires Islamabad to improve tax collection, generate revenue.
Pakistan on Thursday asked the International Monetary Fund for a $5.3 billion, three-year loan to boost growth in a bid to rebuild foreign exchange reserves, resolve an energy crisis, and boost a sliding currency.
Pakistan had long been expected to seek a fresh bailout package from the IMF after it abandoned a $11.3 billion loan program in 2011 because the previous government refused to carry out strict financial reforms. That package had been agreed in November 2008 to stave off a balance-of-payments crisis just months after the 2008 elections.
Finance Minister Ishaq Dar said there was no option but requesting the loan to save Pakistan from defaulting. “We have not carried the begging bowl in our hands nor are we getting a grant, Pakistan is a member of IMF,” Dar said. “The government of Pakistan and the International Monetary Fund have reached an agreement for a three-year program of at least $5.3 billion under an extended fund facility.”
IMF Pakistan Mission Chief Jeffrey Franks said the loan was subject to further approval within the IMF and would then go to the executive board in early September. The interest rate would be set at three percent and the loan would be payable over a longer period than conventional standby arrangements, he added.
Franks said the aim was to bring down the fiscal deficit—which neared nine percent last year—to a more sustainable level and reform the energy sector to help resolve severe power cuts that have sapped growth potential. He added an agreement with the State Bank of Pakistan was also designed to help rebuild forex reserves and keep inflation at acceptable levels.
As part of the loan agreement, Franks added, the Pakistani government has developed plans to improve tax collection and eliminate tax loopholes and exemptions. It also had a program to restructure and even privatize public sector enterprises, which would generate significant revenues.
“The overall focus on this program is to boost economic growth so we can have a better future for all Pakistanis,” he said. “There will be some difficult decisions … but these will be necessary decisions to make sure that the economy is stable going forward.”