Prime Minister Benazir Bhutto said on 17 June that she did not think a structural adjustment accord with the IMF would collapse because Pakistan's budget for fiscal 1995/96 (July-June) did not meet IMF targets. She said that Pakistan wanted to move more slowly in carrying out economic reforms.

An IMF official confirmed that the budget was not in line with an agreement reached in March under a three-year $1,500 million programme begun in February 1994 (MEED 23:6:95). The budget forecasts a deficit of 5 per cent of gross domestic product (GDP), instead of the 4 per cent agreed with the IMF. It also cut the maximum ceiling for import duty by just 5 percentage points to 65 per cent instead of the IMF target of 45 per cent.

The IMF delayed the second year of a three-year $1,500 million structural adjustment loan programme begun in February 1994 because Pakistan failed to meet earlier targets. A team is due to visit Islamabad in early July to discuss the budget.

Bhutto said that reducing the deficit in line with IMF targets would have involved raising Rs 22,000 million ($709 million) of extra taxes. 'We believe in slow reforms, so that there is not much burden on our people,' she said.

The Karachi Stock Exchange index fell by about 3 per cent in the wake of the budget, due to concerns about the introduction of a tax on bonus shares and missing the IMF targets. Bankers say higher government borrowing of up to Rs 30,000 million ($970 million) to finance the deficit is likely to push up interest rates and fuel inflation which is already running at about 13 per cent.

Industries, which have already been hard hit by previous reforms, welcomed the steps such as the reduction of corporate tax rates and the more gradual import duty reductions.