IMF Warns Pakistan Of Post-Quake Budgetary Challenges

Pakistan will face budgetary challenges and should try to broaden its tax base in the wake of the earthquake that has killed at least 41,000 people, but it is not seen as having a serious impact on economic growth, Rodrigo de Rato, the International Monetary Fund's Managing Director said.

De Rato, addressing a news conference in Islamabad during a visit arranged months before the earthquake struck on October 8, said although the international community was providing assistance Pakistan was liable to face an unavoidable widening of its budget deficit.

"There's going to be a challenge in the budget, and in that respect the donors' community, the concessional lending and also the efficiency of the budgetary policies are going to be tested," he said, with Prime Minister Shaukat Aziz standing by his side.

"And we are ready to assist in many ways in that respect and it's up to the Pakistani government to ask, to decide what role we can play. But in growth terms we don't see a consequence of this tragedy," he added.

Asked whether Pakistan's defense spending levels were appropriate in the circumstances, de Rato replied: "There are a lot of issues in the budget of Pakistan that have to be addressed. I have said that one I believe to be the most important one and the one that would produce the better results is the tax base. We see in Pakistan a bigger challenge in the revenue side than on the expenditure side. Of course, expenditures have to be reassessed with this big challenge of the earthquake consequences."

De Rato commended Pakistan on an economic turnaround and market-oriented structural reforms that allowed it to come off an IMF assistance program at the end of last year.

Pakistan which has around $37 billion of overseas debt, has paid back the IMF.

Prime Minister Aziz, a former Citibank executive who became finance minister after President Pervez Musharraf came to power in a bloodless coup six years ago, is often credited with bringing Pakistan back from the brink of bankruptcy.

Aziz said the government still expected the economy to meet its annual growth target of 6.8 percent, after 8.4 percent growth last year (2004/05, July-June) and 6.6 percent the year before.