Imf To Test Waters With New Pakistan Government

A senior IMF official will hold talks with Pakistans new government this week to find out how firmly it is committed to the terms for a standby loan agreed to with the outgoing caretaker administration.

A finance ministry official said the International Monetary Funds executive director for Pakistan, Abbas Mirakhor, would arrive today for a series of top-level meetings.

He said Mirakhor would ask the government how it plans to tackle looming debt payments and meet IMF-agreed targets.

Prime Minister Nawaz Sharif, sworn in on Monday after his Pakistan Muslim League (PML) swept to victory in February 3 elections, has yet to name his cabinet or his economic team.

 

In December, the IMF agreed to resume and expand a stalled standby loan after the caretaker government promised to cut the fiscal 1996/97 (July-June) deficit to four percent of gross domestic product from 6.3 percent in 1995-96.

PML secretary-general Sartaj Aziz, tipped to become Sharifs finance minister, told Reuters after the election that Pakistan might need another year or two to meet the IMF deficit target.

Sharif and Aziz, however, have also promised to abide by IMF agreements, as long as they are in the national interest.

Bankers said Mirakhor was likely to seek assurances that Sharifs government will stick to the four percent target, seen as the key condition for the current standby loan arrangement.

A foreign banker, who asked not to be named, said Mirakhor might also ask the government how it plans to meet debt repayments of an estimated $200 million due this month and $587 million due in March with liquid foreign reserves now at only $589 million. We are more or less back to square one, he said, adding that Pakistan had been close to default on its foreign debt of around $29 billion when President Farooq Leghari dismissed Benazir Bhuttos government on November 5.

The caretakers who replaced Bhutto only delayed the disaster, he said. In fact the caretakers have added another $1 billion of short-term debt by borrowing at exceedingly expensive rates.

The banker said there were signs that Sharifs government might seek a moratorium on repayments on multilateral loans.

I think the IMF would advise against the proposal as even the mention of a formal request for a moratorium would dampen investor enthusiasm towards Pakistan, he said. Analysts say the current account deficit could shoot above $5 billion in 1996/97, with foreign debt servicing reaching $2.25 billion and an estimated trade deficit of $2.8 billion.