Pakistan, IMF agree on $5.3 billion loan deal

ISLAMABAD: The government of Pakistan Thursday agreed to a $5.3 billion loan deal with International Monetary Fund (IMF) to boost its foreign exchange reserves, fight an acute energy crisis, and prop up depreciating rupee, Geo News reported.

"The government of Pakistan and IMF have reached an agreement for a three-year programme of at least 5.3 billion dollars under an extended fund facility," Finance Minister Ishaq Dar announced during a joint press conference with the IMF mission here.

The minister said that the mutually agreed markup rate for the loan had been set at 3 percent.

Replying to a question, Dar said the new government had no choice but to borrow to avoid a balance of payments crisis.

"The borrowed money will be used to service external debts as we just cannot let Pakistan default on its payments, said he.

"We have not carried the begging bowl in our hands nor are we getting a grant, Pakistan is a member of IMF," Dar said.

Dar said the Pakistan had targeted a fiscal deficit of 4 of gross domestic product (GDP) in the next three years.

To a question he said that the federal government could not tax the agriculture sector as it was a provincial matter.

Finance minister also said that the loss-making state-owned enterprises (SOEs) would be restructured to help boost the economy.

Speaking on the occasion, IMF mission chief, Jeffrey Franks, said the loan agreement would be formally approved by Fund's executive board in early September.

"The interest rate will be set at 3 percent and that the loan will be payable over a longer period than conventional stand-by arrangements", he said.

The interest rate would be set at three percent and that the loan would be payable over a longer period than conventional stand-by 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

Franks told newsmen that the government of Pakistan had itself structured the loan programme according to its specific requirements.

Giving details Franks said the agreement necessitated reforms in Pakistan's energy sector as it aimed at improving the south Asian country's ailing economy.

"Pakistan will have to bring its loss-making SOEs back on a profitable track as they are eating away at the country's economy big time", said Franks

IMF mission chief said such liabilities could be privatized to give Pakistan's economy a breather, which would generate significant revenues.

Warning of ballooning fiscal deficit, Franks said the loan agreement also calls for a reduction in Pakistan's fiscal deficit.

As part of the loan agreement, Franks added, the Pakistani government had developed plans to improve tax collection and to eliminate tax loop holes and exemptions.

"The overall focus on this programme 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."

According to a declaration issued by the IMF after the agreement the government of Pakistan was advised to abolish all the SROs and tax exemptions, widen the tax tax net, and improve revenue collection.