Pak to slash defence budget substantially for I.M.F. help

Islamabad, Oct 24 (PTI) Cash-strapped Pakistan will have
to slash its defence budget by a substantial 30 percent over
next four years if it agrees to the International Monetary
Fund's conditions for a bailout package now being discussed.

Facing severe debt-repayment problems and massive
imbalance in its foreign exchange reserves, Islamabad hopes to
get USD 9.6 billion from the I.M.F. over the next three years
at a mark-up rate of 16.7 per cent a year, a media report here
said.

But it pictured "extremely tough conditions", Pakistan
would have to meet to get this financial bailout, The News
daily reported quoting a document containing I.M.F.'s
conditions.

The document states that if Pakistan accepts the I.M.F.
funding, it will have to gradually slash the defence budget by
30 percent between 2009 and 2013 and reduce the number of
jobs entailing pension in government and semi-government
departments from 350,000 to 120,000.

The document further states that six I.M.F. and two World
Bank directors will monitor the preparation of the federal
budget by the finance ministry and could change proposals
which Pakistan government will be obliged to comply with.

Shaukat Tarin, adviser to the Prime Minister on finance,
has said that Pakistan will approach the I.M.F. for aid to
overcome its financial crisis by mid-November, if it is unable
to secure assistance from multilateral donors like the World
Bank and friendly countries.

Pakistan will also have to furnish to the I.M.F. details
of all loans it has availed of under bilateral and
multilateral arrangements 48 hours before signing the
agreement for the funding, which will not be rescheduled, the
document said.

"The IMF will propose taxation structure under package of
reforms in the Federal Board of Revenue and Rs 50 billion
increase in the current target of revenue under the head of
general sales tax," the document said.

"Imposition of agriculture tax will be made mandatory at
the rate of seven percent on wheat production and 3.5 percent
on other crops," it added.

Pakistan requires financial aid worth USD three to five
billion within a month to cover its fiscal gap. As a first
step, it will seek aid from multilateral donors like the World
Bank, A.D.B., Islamic Development Bank and Britain's D.F.I.D.

The second option available to the country is seeking aid
from friendly countries, including members of the Friends of
Pakistan group, which is scheduled to meet in the U.A.E. in
the first week of November.

If aid is not forthcoming from these quarters, Pakistan
will make formal request for assistance to I.M.F., Tarin said.

The document listing the I.M.F.'s conditions further
stated that the Federal Board of Revenue will have to submit a
quarterly report to the Islamabad office of I.M.F. for
monitoring of revenue collection through direct and indirect
taxes.

It said that the I.M.F. representative will be part of
the F.B.R.'s administrative structure and offices of the
I.M.F. will be set up in all the headquarters of Pakistan's
four provinces to monitor the general sales tax collection.

"The Pakistan government will have to provide details of
loans it got from all other lenders, including China, 48 hours
before signing the funding agreement with the I.M.F. and 25
percent of government assets pledged as securities for such
loans will be the property of the I.M.F.," the document said.

The I.M.F.'s intervention in affairs of the State Bank of
Pakistan and provision of details of foreign exchange reserves
and flow of foreign exchange through commercial banks are
other strict conditions entailed by the I.M.F. funding. PTI
R.H.L.