960415

IMF refuses to extend

2nd ESAF of $720m

before 96-97 budget

NADEEM MALIK

ISLAMABAD: IMF has refused to extend second ESAF till the presentation of 1996-97 budget according to the Fund's conditionalities and US$596 million Stand-by-Loan Agreement is being rectified to bar the government to juggle with figures.

The sources confided that government was contemplating to get a second enhanced structural adjustment Facility (ESAF) of US$720 million, after the cancellation of the previous facility of US$1.5 billion. Sources added that the government had not gone on to request for ESAF, but it was being planned, by showing more commitment to implement IMF's conditionalities. Like the case of GST where IMF was not demanding the imposition of VAT at retail level during the forthcoming budget but government is pretending its desire to do so.

But, the sources said that unofficially, it has been conveyed to the concerned officials that, no more ESAF funds, if the budget goes against the Fund's programme.

The sources confided that the government may think of taking up this issue with the IMF Review Mission, arriving next month, but still it is not on the agenda.

One more important factor is the preparation of Policy Framework Paper (PFP), which is a precondition for ESAF. The PFP has not yet been discussed.

The remaining disbursement of US$596 million IMF Stand-by-Loan is linked with realization of performance criteria and clearance by review mission and the government is bound to implement the stabilisation aspects to remove the macroeconomic imbalances.

One of the crucial aspect of this performance criteria is maintaining the flexible exchange rate policy, seeking a balance between preserving competitiveness and containing inflationary expectations.

The reduction in bank borrowing for budgetary support and checking ever increasing rate of inflation is also a very demanding task to do with, where government is using some magic wand and IMF has made it clear that they are going to amend the Stand-by-Loan Agreement. The bank borrowing for budgetary support was a whopping Rs. 65 billion and government brought it down to Rs. 32 billion before 30th March and very next day it has gone upto more than Rs. 50 billion.

The two tranches comprising of US$200 million IMF Stand-by-Loan has already reached and third of US$78 million will be released after the clearance of review mission.

The monetary and fiscal policy framework agreed with the IMF aims to slow the growth of domestic liquidity by tightening credit policy and interest rate measures.

SBP has been asked to curtail the domestic credit expansion from Rs. 65 billion. There are certain other performance criteria measures like revenue collection target, trade and some others, but these are not binding conditions.

Sources confided that these are preparatory steps and contain some structural reform elements to put the economy back on track.