China has agreed to extend financial assistance of $500 million to Pakistan, said advisor to the Prime Minister on finance Shaukat Tarin while concluding debate on current economic situation in the Senate Thursday.
He said that the government was expecting $5 to 6 billion at the lowest interest rate from IMF next month. It may offer loan on four percent interest rate, he said, adding that IMF had attached no condition.
"The government has announced tough measures for reducing fiscal deficit, current account deficit and inflation in the budget. These targets set in the budget are tough. The IMF will not seek any other measure from Pakistan," he told the Senate.
The advisor defended the SBP move of increasing the discount rate. However, he said that parliament is the supreme institution and it can seek explanation from SBP about the raise. He clarified that this had nothing to do with proposed IMF package.
At the same time he said inflation was fatal for economy. Citing the cases of Argentina, Brazil and a number of other countries, he said that these countries showed negative growth for some years to contain inflation. "Inflation has touched 25 percent. The inflation will have to be reduced and the SBP move in that direction," he added. He said that high inflation could lead to hyperinflation and at that stage things would get out of control. By increasing the discount rate, we are trying to help the country in controlling the inflation within the limits specified in the budget 2008-09. "We need to undertake some difficult decisions to improve the economic situation," he said. He said that IMF was a reformed organisation and it has been improved from what it was in 1990s.
Tarin said that once inflation showed a declined and it reached at permissible level, the discount rate would be reduced. He hoped that plight of capital could be arrested once the government announced its economic plan.
He said Pakistan could not afford default on debt repayment. The countries, which had done in the past, have to struggle for long to get back to the track. Tarin accused the previous government for not taking actions on right time. Most of the corrective measures were delayed by the previous government owing to election year, he said.
Meanwhile, in a press release the finance ministry stated the Chinese assistance is a goodwill gesture from Beijing, which bears testimony to the brotherly relations between the two countries. The financial assistance of US $500 million is in addition to the same amount deposited by the Chinese government with the State Bank of Pakistan (SBP) in June 2008, the ministry clarified.
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