A high-level government delegation arrived in Washington on 25 July for an unscheduled meeting with the IMF to explain recent budget action which was at variance with agreed targets.
The government’s economic strategy is supported by two IMF programmes; the Enhanced Structural Adjustment Facility (ESAF) and Extended Fund Facility (EFF). The three-year combined package is worth some $1,500 million to Pakistan, and is designed to help it undertake economic reform programmes, strengthen its balance of payments and improve growth prospects. However, there are several stringent conditions attached to the IMF package (MEED 30:6:95). Among these is a government commitment to reduce the ratio of budget deficit to gross domestic product (GDP).
The agreed target was a deficit of 4 per cent of GDP. However, the budget, which took effect from 1 July 1995, incorporates a deficit of 5 per cent of GDP (MEED 23:6:95). This meant that the IMF was not forthcoming with the more than $500 million the government would have been able to draw upon.
The delegation, arriving at its own behest, will seek to reverse the IMF’s decision, but this may prove to be difficult. ‘The IMF did not stall or withdraw anything’, said one well placed financial source in Washington. ‘But the review has to be completed based on agreed targets.’