The government has signalled it will seek a standby loan from the IMF to stabilise the economy before implementing a two-year-old structural reform programme suspended in 1995. A formal request for short-term help is likely to be made during an expected visit in November by an IMF team, according to Shahid Hassan Khan, Prime Minister Benazir Bhutto’s special assistant for economic affairs.
Hassan Khan was speaking four days after the government devalued the rupee by 7 per cent on 28 October. Domestic oil prices were put up by the same margin, in what the government said was an effort to help stagnating exports and consolidate the balance of payments position.
The rupee’s new rate as of 29 October was $1=Rs 34.25, compared with $1=Rs 31.85 on 22 October. The State (central) Bank of Pakistan also raised key interest rates by 1 per cent to curb credit and monetary expansion.
Hassan Khan told Reuter news agency on 1 November that he thought ‘we will get a standby facility which will then lead us back to the ESAF (enhanced structural adjustment facility) programme’. The IMF began a three-year $1,500 million lending programme in February 1994, but withheld disbursement in 1995 because Islamabad was failing to meet IMF-agreed targets.
Hassan Khan said new tax measures are aimed at ensuring Pakistan meets its own target of cutting the government’s budget deficit to 5 per cent of gross domestic product (GDP) from 5.6 per cent in 1994/95. The IMF had sought a deficit target of 4 per cent of GDP and had wanted maximum tariffs slashed to 45 per cent, rather than the 65 per cent announced in the June budget.
The IMF also wants Pakistan to extend sales tax to the retail level, but Hassan Khan said it would be hard to implement this during 1995/96 because administrative preparations are incomplete.
The package of measures announced on 28 October includes a new temporary regulatory duty of 20 per cent on all dutiable imports, subject to the condition that the maximum tariff on an item should not exceed 65 per cent, and a 5 per cent duty on non-dutiable imports except wheat, fertilisers and power generation plants of up to 3,000 MWs. The position of imports allowed duty-free under treaties with foreign governments and agencies will not be affected.