Fri, 11 Feb 2000

Pakistan must seek alternative funding

By Imran Maqbool Sheikh

KARACHI (AFP): Pakistan may not receive all the funding it hoped for when the International Monetary Fund (IMF) reopens a creditline frozen after October's military coup, analysts say.

The Fund last month switched loans to Pakistan and many other countries from an Enhanced Structural Adjustment Facility (ESAF) to a new Poverty Reduction and Growth Facility.

The move was an effort to answer critics of the Fund's actions during the Asian financial crisis.

It may also mean Islamabad will at first have to settle for less than the US$280 million it was expecting in the next loan tranche, analysts said.

"Pakistan will have to seek alternative funding," said Arshad Arif, head of research at First Capital ABN Amro Equities.

Pakistan found its borrowing dried up after the May 1998 nuclear tests. Although the IMF briefly reactivated lending last January, the military coup put that on hold again.

An IMF review mission is expected to arrive later this month to hold talks with the Pakistan authorities about the resumption of a new credit line. An IMF technical mission is already in Islamabad to collect economic data.

There will be no change in IMF conditions after the switch over in facilities, analysts said adding new program will focus more on poverty alleviation than on structural reforms, which have nearly been achieved.

"ESAF was not particularly successful especially during the Asian financial crisis," Arif said.

The change in lending programs came after the Fund faced criticism over the Asian financial crisis.

"An attempt was being made to give a humane face to IMF programs, which are often criticized for rising unemployment, commodities prices, inflation etc," said Aftab Ahmed Khan, a former Pakistan finance secretary.

Analysts say Pakistan eventually will be able to secure a new credit line since some of the key IMF demands have been agreed by the new military government including an increase in petroleum prices and the resolution of power project disputes.

Finance Minister Shaukat Aziz has clearly said a general sales tax will be imposed on retailers from the next budget, another key IMF demand.

"The easy monetary stance adopted by IMF in recent weeks especially with regard to budget deficit makes Pakistan's chances even brighter," said Ibrahim Masood, an expert at KASB, a leading brokerage firm.

He said the IMF mission will be reviewing the government's economic performance since the coup.

"The present regime has announced some sweeping reforms coupled with an impressive recovery of defaulted loans to the tune of 16 billion rupees ($290 million)," Masood said.

Karachi's stock market has climbed more than 40 percent since the coup, on the back of an improvement in sentiment.

Former finance secretary Khan said economic prospects looked brighter.

"The economic stagnation of past few years is breaking up as the country is expected to achieve a 4 percent growth rate during the current financial year," he said.

Analysts said the Fund was not likely to release the next loan until the end of March.