Odious Debts

Pakistan asks IMF for $4bn to plug budget deficit

Mubarak Zeb Khan
The DAWN Media Group
June 14, 2009

‘This facility is insurance, which can be used in case the assistance from the multilateral donors or friendly countries delayed or does not arrive,’ Adviser to Prime Minister on Finance and Revenue Shaukat Tarin told newsmen in the post-budget press conference here on Sunday.

He said that this facility would be finalized in the next IMF board meeting. This funding will not be used to build up reserves, but to financing the budget deficit, he added.

The government estimated a budget deficit of 4.9 per cent of GDP next year, which is higher than the 4.6 per cent agreed with the IMF. Analysts estimated the deficit is likely to be between five per cent and 5.5 per cent by the end of next year. This will be mostly funded through the $5 billion pledges made in the Tokyo meeting last April.

Pakistan received $4.8 billion from Asian Development Bank, World Bank, Islamic Development Bank and other friendly countries including Saudi Arabia during the current fiscal year. ‘A similar amount of $4 billion is expected next year from these sources,’ Mr Tarin claimed.

‘You can not say multilateral donors will not provide loan next year. Friends of Pakistan also committed $5.2 billion for two years (over $2.6 billion per year),’ he said. Of these $1 billion each would come from USA and Japan and the rest from other countries.

He said that there is no pressure on government money. He said that administrative measures would be taken to improve the revenue collection in the next year; more than Rs66 billion would be raised under revenue measures taken in the budget.

The carbon tax would help the government raise more than Rs134 billion in the next year. ‘The carbon tax is aimed to reduce consumption of the petroleum’ the adviser said.

With an increase in oil prices, the component of carbon tax would also increase, which would be passed on to end consumer fueling further inflation.

Mr Tarin said that phasing out electricity subsidies were meant to improve the efficiency of power producing companies. He agreed with a questioner that this would directly raise electricity rates. However, he would not disclose the exact per centage increase in power tariff.

With the phasing out of electricity subsidies and carbon tax, inflation is likely to rise. However, Mr Tarin claimed the government would bring down inflation to 9.5 per cent next year from an expected 12.5 per cent during the current fiscal year.

He said that the NFC will be reconstituted within next 90 days. ‘I can not head NFC as I am not an elected person,’ he said. The pay and pension committee would give proper recommendation to raise the salary of government employees in line with market salaries. He said the government would make further adjustments in salaries of employees in December.

He said with Pakistan’s economy stabilizing and inflation settling at single digit, important measures will be in place under an innovative roadmap to revive the economy on sustainable grounds, but with a human face, hiking allocations in health and education sectors and alleviating poverty in a transparent manner.

He said administrative expenditures would be sliced down by Rs120 billion to cut the budgetary deficit.

He said non productive subsidies are being done away with this year. Foreign exchange reserves stood at $11.30 billion while GDP valued was valued at Rs14.82 trillion.

Responding to a query about the entitlement of 15 pc adhoc relief with regard to regular, contract and daily wage employees of the government and semi-government corporations, the advisor said that all those who were getting their salaries from the national exchequer will be entitled to adhoc relief.


Categories: Odious Debts

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