November 12, 2008	Wednesday	Ziqa'ad 13, 1429

ISLAMABAD, Nov 11: Adviser to Prime Minister on Finance Shaukat Tarin said on Tuesday the government would be approaching the International Monetary Fund in 15 to 20 days for a bailout package and for endorsement of its programme.

Making an opening statement in the Senate before the start of a debate on national economy, he said the IMF was not thrusting any harsh conditionality for the bailout package and was accepting what was being proposed. There was no harm in approaching the organisation even if a loan agreement was not reached.

Mr Tarin said that international financial institutions had endorsed and appreciated the government’s economic programme and social safety net, but it was essential to get the programme approved by the IMF before financial assistance was obtained from other donors.

“IFIs have seen our targets as achievable but these need a lot of discipline and a lot of determination.”

He said Pakistan was facing enormous economic challenges for various reasons, such as global shocks, shortage of oil and food and inaction on the part of the previous government.

“This ultimately reflected in massive loss of foreign exchange reserves which have declined to less than $7 billion from $16.4 billion in October last year.”

Mr Tarin said that inflation was at 25 per cent, fiscal deficit was rising, currency had depreciated by over 30 per cent and the economic growth rate had come down to less than five per cent. He said the stock market had declined by over 40 per cent -- from 15,500 points to a little over 9,000 points.

“In this situation, the country not only needs economic revival but also restoration of the confidence of rating agencies and IFIs to ensure inflow of foreign currency to strengthen our reserves. We are also facing the balance of payment crisis.”

He said the 2008-09 budget was a sound and tough programme and he was giving a roadmap to curtail fiscal deficit.

“We will ask our development partners to bridge the balance of payments gap. Even if we go for a cut in the fiscal side, we will need the help of development partners for inflows. When we consulted with IFIs and development partners, they sought endorsement by the IMF. We believe if at all we do not go to the IMF for funding, we need its endorsement of our plans,” he added.

The adviser said: “The focus of our discussion with the IMF was on a few areas. We said we would bring down our fiscal deficit from 7.4 to 4.3 per cent, although it was a tough target due to inflation, yet it was achievable.”

He said the second point discussed with the IMF was zero borrowing from the State Bank. “Excessive borrowing by the previous government has added fuel to the fire. There should be no net borrowing from State Bank.”

He said that fiscal deficit had come down to Rs138 billion from Rs175 billion. He said that Rs50 billion had been budgeted from foreign loans and Rs60 billion raised from national savings and there was a shortfall of just Rs20 billion to 25 billion.

Mr Tarin said that monetary growth, which was 20 per cent last year, had come down to 14 per cent and for this “we must have realistic exchange rate”.

He said the exchange rate was artificially kept at Rs60 a dollar for years by borrowing from international markets which had affected “our exports and imports thrived, creating imbalance in payments”.

He said the exchange rate had declined to Rs79 from Rs84 and to further stabilise the exchange rate, inflation would have to be brought down to single digit. He said the government would also have to expand the tax-to-GDP ratio from the existing 10.5 to 15 per cent.

Leader of Opposition in the Senate Kamil Ali Agha said the local government system enjoyed constitutional protection and any changes in it should be discussed in parliament. He said the government should privatise only those units which were running in losses.

He called for a uniform price for roti which was available at Rs2 in Punjab and Rs10 in the NWFP.

Mr Agha warned that imposition of agricultural tax would be devastating for the country and would not be accepted by farmers.

He said that any deal with the IMF would lead to price hike and asked the government to curtail non-development expenditures.