The government has decided to borrow around $600 million from the Islamic Development Bank to enable itself to pay back the International Monetary Fund''s first instalment of $1.2 billion due this month, well informed sources revealed to this correspondent.
Sources added that there was a possibility that the rate of interest would be as high as 6 percent which is very high given the historically low rates prevailing in the global market. To put this rate in perspective it is critical to note that the London Inter-Bank Offered Rate (LIBOR), a benchmark for finance all around the world, was 1.06 percent for dollars on 20 February for one year. There is a falling trend in interbank rates globally driven by expectations that euro zone politicians will continue to pursue debt reduction reforms and make progress on fixing the currency union''s major flaws, such as the lack of fiscal unity, Reuters reported.
However in Pakistan, the IMF suspended the last two tranches of the $11.3 billion Stand-By-Arrangement (SBA) for failure to implement three major economic policy commitments: limiting fiscal deficit to 4.7 percent of Gross Domestic Product, introducing integrated value added tax (VAT) and power sector reforms.
Additionally, other multilaterals requested the federal government to procure a Letter of Comfort (LoC) from the IMF before they would release the pledged programme lending. Failure of the government to convince the IMF to get LoC has led to cessation of the programme lending from multilaterals as well as bilaterals.
While remittance inflows have risen yet they are not sufficient to meet the country''s rising import bill or indeed meet the debt payments scheduled for this month of which the loan repayment for the IMF is the most significant. Sources maintained that as the government was facing serious pressure on its external account with the payment of $1.2 billion to the IMF approaching it was compelled to try to avail short-term import financing facility from the IDB, at a high interest rate of around 6 percent per cent.
A team of Economic Affairs Division (EAD) and Ministry of Finance led by Secretary EAD Waqar Masood and Special Secretary Finance Rana Asad Amin arrived in Dubai on February 21, 2012 for talks with the high-ups of IDB to finalise the modalities for availing the import finance facility of $600 to $800 million considered important to ease the expected pressure on external account.
The remaining amount of $400 to $600 million due to IMF may be taken from the foreign exchange reserves which would not be conspicuous. In reply to a question about its impact on the budgeted debt servicing for the current fiscal year, the official said that it will not have any impact on the ongoing budget but debt servicing allocation for the next fiscal year would considerably go up if borrowed at 6 percent interest rate.