Pakistan has requested the International Monetary Fund (IMF) for a waiver of non-observance of its quantitative performance criterion on the fiscal deficit by 0.1 percent of the gross domestic product (GDP) - Rs 15 billion in total - for end-December 2009 to meet urgent military spending and avoid undue cuts in other priority spending.
According to the letter of intent (LoI), the memorandum of economic and financial policies and technical memorandum of understanding (MoU), submitted to the IMF by the Finance Minister and the Governor of State Bank of Pakistan on December 11, 2009, Pakistan requested a modification in performance criteria for the fiscal deficit for end-December 2009.
Pakistan also requested for modification in performance criteria on net foreign assets and net domestic assets of the State Bank of Pakistan to reflect revised projections for end-December 2009, and establishment of performance criteria for end-March and June 2010. The LoI pointed out that Pakistan was facing pressure on fiscal side because the commitment by the donors in April's Tokyo conference did not materialise. Pakistan wanted early disbursement of the donors support pledges in Tokyo.
"Although there are risks to the fiscal targets, the promised grant financing would accommodate the additional security spending in South Waziristan as well as internally displaced persons (IDPs). "The materialisation of pledges by the donors should greatly limit the need to cut development spending," said the LoI.
"To this effect, we are seeking from the donors 0.3 percent of the GDP in grants to help cover expenditure on the IDPs. Should the grants for this purpose fall short of this amount, the deficit (excluding grants) would be reduced correspondingly, however, the expenditures on the IDPs as well as on the social safety net and education will be protected," the LoI added. Pakistan informed the Fund that the military operations in Swat and South Waziristan were adding to the budget outlays for security, and the depressed global economic activity and higher oil prices had affected Pakistan's domestic economy.
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