Bhutto, Imf Reach Budget Accord

Speaking in London on her way back from talks at the United Nations in New York, she said the plan involved a pretty harsh budget, but she indicated that the understanding fell short of a full agreement that would allow Pakistan to resume drawings on a $600 million loan negotiated last December. An improved relationship with the IMF was more important than fixing draw-downs on the loan, she said.

These have been blocked because of the countrys failure to meet economic targets. Bhutto said the government had sufficient resources to meet the foreign debt repayments even without fresh credit from the IMF. But adopting tough fiscal measures may be hard at a time when pressure is intensifying on Bhutto at home amid open disagreements with President Farooq Leghari over his right to appoint judges, his insistence on tougher laws to fight corruption and concerns about economic growth.

We were hoping for a more sympathetic hearing from the IMF, but I think its to help the bankers that they look at it in a different way, said Bhutto, who met Stanley Fisher, deputy IMF managing director, on the sidelines of the UN last Thursday.

She acknowledged that budget receipts had fallen below target because of the wave of strikes that followed the introduction of a sales tax on goods and services in her budget this June. The IMF has been urging Pakistan to hold its budget deficit to 4 per cent of gross domestic product, a level agreed when the IMF standby loan was negotiated, and has been concerned that the revenue targets from the sales tax were unrealistic. It has been stressing the need to cut spending as well as improve tax collection and speed privatisation. With reserves now down to $1.2 billion compared with $1.7 billion before the June budget, the delay in drawing down the IMF loan has caused concern that Pakistan may face difficulty meeting heavy foreign debt repayments between now and the end of the year.