The country's economic team has reached an understanding with the International Monetary Fund for a possible Extended Fund Facility (EFF) programme for the next government to deal with a likely balance of payment problem. This was stated by the Advisor to Prime Minister on Finance Dr Shahid Amjad at a briefing to media on his return from the annual meeting of World Bank and IMF in Washington DC.
The advisor said the technical level talks were held with the IMF and an understanding has been reached that the next government could approach, if it so desires, to the Fund for around $5 billion EFF loan programme. The advisor said it would be the prerogative of the next government to decide about the programme and categorically stated that no request was made to the IMF by the caretaker government for a loan. Shahid said the Finance Ministry would also brief the Cabinet about the technical level talks and understanding reached with the IMF about the future financing arrangements. The advisor said he would also inform the political parties if allowed by the Prime Minister on the issue. However, he said the new government, if it decides to avail the EFF programme and financing facilities of other lending institutions, would be required to undertake some measures to adjusting power tariff, management of expenditure and to broaden the tax base. Another key understanding reached with the IMF is that if new elected government decides to reform the economy under the EFF it would ensure the impact on the poor is minimised and on the rich maximised.
The IMF is likely to hold talks with new elected government before the announcement of the budget so that the measures to be taken under the EFF programme could be made part of budget 2013-14. The advisor said the caretaker government is working on stabilising the economy so that it could be handed over to the new government in a better shape. He described the talks with the IMF as very positive. He ruled out that there would be any BoP crisis before or immediately after the budget but the situation could be problematic in the next five months when the country would be required to fulfil some obligation of payments.
The advisor said the budget deficit is expected to be 7.3 percent for the current fiscal year against the budgetary target of 4.7 percent of the Gross Domestic Product (GDP). The advisor identified energy crisis as major challenge of the country which is largely due to structural issues such as low tariff high cost of electricity, untargeted subsidies, very low collection of bills by distribution companies, inefficiencies and huge line losses. He said on the directives of the Prime Minister, Rs 10 billion has been issued to power sector and remaining Rs 10 billion would be issued shortly. The Ministry of Finance is already paying Rs 25 billion per month to power sector, he added.