President Asif Ali Zardari and Prime Minister Syed Yousuf Raza Gilani have given a green signal to the Finance Ministry to send the letter of intent (LoI) to the International Monetary Fund (IMF) subsequent to regrets received from the members of the "Friends of Pakistan," well-placed sources told Business Recorder here on Tuesday.
"The government has made tireless efforts to convince time-tested friends to extend financial assistance, but all of them advised Pakistan to approach the IMF for this purpose," the sources added. The sources said all the IMF conditionalities had already been agreed by the Finance Ministry and any discussions in the cabinet would be just eyewash.
The sources said Pakistan and IMF had already completed negotiations under article IV during October 20-30, 2008 meeting held in Dubai. The Pakistan team comprised Section Officer level officials, however, a few senior officials joined the team mid-negotiations.
The official was of the view that the IMF might consider Pakistan as a candidate for an emergency-funding scheme for countries plunged into economic financial crisis activated on October 8, 2008. The IMF has a chest of 250 billion dollars to lend, but its chief Dominique Strauss-Kahn said: "Isn't enough in these troubled financial times."
According to the sources, under this newly established fund, the countries will be able to get financing up to 500 per cent of their quota under Standby Arrangements. For instance, if Pakistan's quota was two billion dollars, it would get around 10 billion dollars and if its quota was around 1.5 billion dollars, it might receive 7.5 billion dollars, the sources added.
Under the IMF's policy of normal access, countries can request financing up to 100 percent of their IMF quota on an annual basis and 300 percent of their quota cumulatively. In exceptional circumstances, additional resources are requested as "exceptional access".
There is no pre-specified maximum on such access, although the IMF will assess factors such as the size of balance of payment pressures, the country's debt sustainability and its ability to regain access to financing from other sources, and the strength of policies to be adopted. When there is a crisis, disbursements tend to be front-loaded with smaller subsequent tranche.
The sources said negotiations had been completed with the IMF and now the Finance Ministry had to send the LoI. The countries with good track record and access to the capital markets and sustainable debt burden may qualify for this programme.
Financing will be made available without standard phasing and loan conditions of more traditional IMF arrangements. The countries are to certify that they are committed to following strong macro-economic policies.
As the Advisor on Finance sent the LoI to the Managing Director of the IMF, the Fund would consider Pakistan's case in the board meeting, which took place twice a week, and would disburse the approved amount, which was required immediately, the sources continued.
The sources said that the IMF would disburse the loan in seven quarterly instalments and the last tranche would be on June 30, 2010. Some of the major demands of the IMF are said to be a reduction in budget deficit, current account deficit and enhancing the tax-to-GDP ratio.
To enhance tax to GDP ratio, the government has to bring several sectors into the tax net, including agriculture sector, which according to the official was enjoying subsidy, but not paying tax. A mini budget is expected by the end of the current calendar year.
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