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ref:Pakistan wins reprieve from financial crisis - Telegraph
Pakistan wins reprieve from financial crisis
Pakistan has managed to stave off a catastrophic debt crisis by winning an eleventh-hour reprieve from the International Monetary Fund, which has now given the country nine months to implement radical reforms before cutting off loans.
Daily life in Pakistan is a struggle for millions Photo: AP
By Praveen Swami, Diplomatic Editor 4:21PM GMT 30 Dec 2010
The IMF had been set to cut funding from the new year but has now agreed that Pakistan can have more time to impose a 15 per cent value-added tax, slash subsidies to inefficient public sector enterprises and implement a raft of other measures to reduce its estimated 7 per cent fiscal deficit.
Pakistan received access to £7.5 billion from the IMF in 2008-2009, more than the entire assistance it had received since its independence in 1947 as reward for its cooperation in the war against Islamist terrorism. But it is still in serious financial trouble, as are several states at the frontline in the battle against terrorism.
Last year, recession-hit donors gave Afghanistan just two-thirds of the aid the United Nations had appealed for, wary about misappropriation of funds. Yemen is also yet to receive funds committed by partners in the West and Middle East because of concerns over corruption. "Either we can let corrupt governments go under and thus help the terrorists," a US State Department source told The Daily Telegraph, "or we can keep letting them be corrupt and thus help the terrorists. It's a horrible choice."
Pakistan is going to have plenty of trouble implementing the desired reforms. The government of Asif Ali Zardari is in crisis talks after ministers from one of the coalition partners walked out this week. And politicians are resisting the imposition of austerity measures in a country still badly suffering the effects of devastating flooding.
Shahid Hassan Siddiqui, at the Research Institute of Islamic Banking, says that the IMF tax proposals will "hurt the poor". "The agricultural elites who generate a fifth of our GDP pay less than 1 per cent of our taxes. Property sales aren't taxed, and the stock markets pay next to nothing."
But Saqib Sherani, an economist who helped Pakistan to negotiate with the IMF, said resistance to changes also reflected the reluctance of powerful groups to make themselves more vulnerable to a clampdown on tax evasion.
Pakistan's external debt now stands at £35.5 billion, and will increase to over £47 billion in 2015. In November, Rehman Malik, the interior minister, called for the country's external debt to be written off much to the ire of finance ministry officials, who believed his call would frighten off investors.
Economists estimate Pakistan's economic output will increase by less than 3 per cent in 2010-2011, one-third of the rate expected in India, and half that of Bangladesh. Shahid Javed Burki, Pakistan's former finance minister, said the country was ending the year as "the sick man of South Asia".
US officials have privately been calling cuts in Pakistan's defence spending. Peter Lavoy, the US National Intelligence Officer for South Asia, said in a 2008 diplomatic briefing: "Despite impending economic catastrophe, Pakistan is producing nuclear weapons at a faster rate than any other country in the world."
ref:Pakistan wins reprieve from financial crisis - Telegraph
Pakistan wins reprieve from financial crisis
Pakistan has managed to stave off a catastrophic debt crisis by winning an eleventh-hour reprieve from the International Monetary Fund, which has now given the country nine months to implement radical reforms before cutting off loans.
Daily life in Pakistan is a struggle for millions Photo: AP
By Praveen Swami, Diplomatic Editor 4:21PM GMT 30 Dec 2010
The IMF had been set to cut funding from the new year but has now agreed that Pakistan can have more time to impose a 15 per cent value-added tax, slash subsidies to inefficient public sector enterprises and implement a raft of other measures to reduce its estimated 7 per cent fiscal deficit.
Pakistan received access to £7.5 billion from the IMF in 2008-2009, more than the entire assistance it had received since its independence in 1947 as reward for its cooperation in the war against Islamist terrorism. But it is still in serious financial trouble, as are several states at the frontline in the battle against terrorism.
Last year, recession-hit donors gave Afghanistan just two-thirds of the aid the United Nations had appealed for, wary about misappropriation of funds. Yemen is also yet to receive funds committed by partners in the West and Middle East because of concerns over corruption. "Either we can let corrupt governments go under and thus help the terrorists," a US State Department source told The Daily Telegraph, "or we can keep letting them be corrupt and thus help the terrorists. It's a horrible choice."
Pakistan is going to have plenty of trouble implementing the desired reforms. The government of Asif Ali Zardari is in crisis talks after ministers from one of the coalition partners walked out this week. And politicians are resisting the imposition of austerity measures in a country still badly suffering the effects of devastating flooding.
Shahid Hassan Siddiqui, at the Research Institute of Islamic Banking, says that the IMF tax proposals will "hurt the poor". "The agricultural elites who generate a fifth of our GDP pay less than 1 per cent of our taxes. Property sales aren't taxed, and the stock markets pay next to nothing."
But Saqib Sherani, an economist who helped Pakistan to negotiate with the IMF, said resistance to changes also reflected the reluctance of powerful groups to make themselves more vulnerable to a clampdown on tax evasion.
Pakistan's external debt now stands at £35.5 billion, and will increase to over £47 billion in 2015. In November, Rehman Malik, the interior minister, called for the country's external debt to be written off much to the ire of finance ministry officials, who believed his call would frighten off investors.
Economists estimate Pakistan's economic output will increase by less than 3 per cent in 2010-2011, one-third of the rate expected in India, and half that of Bangladesh. Shahid Javed Burki, Pakistan's former finance minister, said the country was ending the year as "the sick man of South Asia".
US officials have privately been calling cuts in Pakistan's defence spending. Peter Lavoy, the US National Intelligence Officer for South Asia, said in a 2008 diplomatic briefing: "Despite impending economic catastrophe, Pakistan is producing nuclear weapons at a faster rate than any other country in the world."
