ISLAMABAD - A Pakistani delegation has flown to Abu Dhabi to negotiate with International Monetary Fund, which would review the health of Pak economy and the outcome would determine the fate of $3 to 4 billion aid from the multilateral donors.
Pakistan is scheduled to hold very crucial negotiations with the IMF during the next four days and the outcome of these talks would resolve whether the country would be in queue like 16 other world nations for the IMF Programme or get assistance from other multilateral lenders. The meeting venue has been shifted to Dubai due to the United Nations advisory, which prohibits the delegates to visit Islamabad because of deep security concerns.
A Letter of Comfort by the IMF would secure $ 1.4 billion from the World Bank and an early release of up to $1b from the Asian Development Bank, which otherwise would be disbursed in the third and fourth quarters of the current fiscal year 2009, said the Finance Ministry sources.
They said this amount included $500m under Accelerating Economic Transformation Programme and about US $ 500 million under Capital Market Reforms Programme.
The IMF assesses short-term Pakistan needs at $4.5b and Pakistan makes it at $3.5b. An affirmative report from the Fund would not only send positive signals to the market but also avoid default on Sukuk bond of $500m due in February 2009.
Pakistan’s current account deficit in the first quarter has widened to $ 3.9b and the foreign exchange reserves can only support 6 weeks imports at a time when people prefer dollars to local currency.
These parleys would be held under Article-IV of the Fund, a technical paper that states performance of the economy “according to the IMF view”. Secretary Finance, Dr Waqar Masood would lead the team. However, he would depart today (Tuesday).
A country normally can get aid up to its share in the IMF budget. However, in special circumstances, when the applicant is facing serious problems of balance of payments, the IMF can provide the assistance much more than the quota. Pakistan’s share of the IMF budget is SDR 1,033.7 million.
Pakistan is fast running out of options and is in need of foreign assistance during the next one and a half months. Any delay in the foreign aid would land Pakistan into the Fund lap, which is always ready to help on its own conditions, normally hitting hard the poor. After the IFIs, Pakistan is attaching great hopes from Friends of Pakistan meeting, being held in mid-November in Abu Dhabi.
The IMF provides three types of assistance, surveillance, technical assistance and financial assistance. In technical assistance, the Fund advises on macroeconomic indicators. It assists in framing tax structure, revenue administration, monetary policy and exchange rate system.
