WASHINGTON, Oct. 23 (UPI) -- Pakistan has been at the forefront of the international political scene, and its strategic importance in the global war against terrorism is allowing the government to secure more funding from multinational agencies.
The International Monetary Fund said Tuesday it is likely to approve a new loan to Pakistan soon, while the World Bank approved a $300 million loan to help the country support its banking system on the same day.
Sharing its eastern border with Afghanistan, Pakistan has been where the bulk of Afghani refugees have been heading to seek shelter from the U.S. military strikes against the Taliban. Pakistan's importance both militarily and politically has spurred international efforts to keep the country's economic engine humming, and industrialized countries have been striving to ensure the support of the country's largely Muslim population.
The IMF will be coming up with an economic package "to help Pakistan cope with the economic and financial fall-out of the events in Afghanistan, such as higher insurance costs for exports and imports, as well as weaker world demand," the agency's external relations director, Thomas Dawson, stated. "Further discussions will be held with Finance Minister (Shaukat) Aziz in Paris this week with the intention to proceed speedily toward an agreement in the period immediately ahead."
Officials of major industrialized nations are currently in the French capital to take part in the Paris Club meeting of creditors to discuss the possibility of reducing or restructuring Pakistan's bilateral debts. Obtaining an IMF loan will be critical for the country to negotiate cutting down its debt. The Pakistani government has said that it carries a total of $36 billion in foreign debt, of which $15 billion is due to multilateral agencies such as the IMF, while $12 billion is bilateral debt. The remaining sum is owed to lenders from the private sector.
The international agency had already fast-forwarded disbursing the third and final tranche of a $596 million stand-by loan shortly after the Sept. 11 terrorist strikes. The $135 million released last month was not expected to be available until some time next year as the loan itself was only agreed upon in November 2000.
Pakistan's next loan from the IMF should be from the agency's Poverty Reduction and Growth Facility program, which would be available at a considerably lower lending rate and more generous terms than the standard IMF loan package. PRGF loans carry a 0.5 percent interest rate, which is not only repayable over 10 years, but also allows for a grace period over 5.5 years on principal payments.
Meanwhile, the World Bank's $300 million loan approved Tuesday is expected to assist Pakistan in its efforts to privatize national banks.
"Due to weak market conditions, a poor foreign investment climate, and weak financial position of banks, bank privatization has not yet materialized," said the World Bank's lead South Asian financial sector specialist Joe Pernia. "The government is now promoting the expansion of private financial institutions."
The funds are expected to reduce the cost structure of state-owned banks, complete the privatization of semi-state owned banks, and facilitate loan collateral foreclosure to reduce the cost of default as well as to expand lending to consumers.
It is often the case that when the IMF does approve new loans to creditor nations, the World Bank follows suit by also pumping in more money to address social concerns of those countries.
Additional funding from the Bretton Woods institutions often subsequently encourage more financial assistance from individual countries and potentially from private banks thus benefiting development.
