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IMF bailout requires belt-tightening and hard decisions: Pakistan wins final approval of IMF loan

* First $3.1 billion instalment to be transferred immediately
* IMF says it is sending strong signal to donor community about country’s improved macroeconomic prospects

WASHINGTON/ISLAMABAD: Pakistan is required to tighten its belt and take potentially unpopular decisions by cutting subsidies and slashing government expenditure as part of the 23-month stand-by loan of $7.6 billion approved by the International Monetary Fund (IMF) on Monday.

$3.1 billion of the loan will be in Pakistani hands by Thursday.

“By providing large financial support to Pakistan, the IMF is sending a strong signal to the donor community about the country’s improved macroeconomic prospects,” IMF Deputy Managing Director Takatoshi Kato said.

The IMF said Pakistan had agreed to phase out energy subsidies, boost taxes and implement other money-saving reforms, AP reported, and the World Bank would put in place a ‘comprehensive’ social security net to shield the poor from any cuts. The IMF said the credit was also to “ensure social stability and adequate support for the poor and vulnerable in Pakistan”, AFP reported.

Kato said global economic turmoil, higher prices for oil and food imports, and a worsening internal security situation meant Pakistan has suffered from “a large increase in the fiscal deficit prices ... rising inflation and a sharp decline in international reserves”.

Reuters quoted IMF as saying “The central bank will pursue a flexible exchange rate policy, with intervention in the foreign exchange market geared toward achieving the programme’s reserve targets and smoothing excessive exchange rate volatility.” The fund said that Pakistan would aggressively trim its fiscal deficit, halt central bank finance of government spending and curb the country’s current account deficit. “Spending on the social safety net will be increased by 0.6% of GDP, to 0.9% of GDP in 2008/2009,” it said.
khalid hasan/agencies

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