Credible reports circulating in the corridors of the Ministry of Finance indicate that Pakistan is contemplating to enter into a new IMF programme worth $3 to $5 billion on terms and conditions different from those applicable under the November 2008 Stand-By-Arrangement (SBA). These terms and conditions will be harsh and difficult to fulfil. The IMF loan is unavoidable given the difficult economic conditions that the country is faced with, and the inability of the Government of President Zardari to cut down its non-development expenditure and to tax sectors that are outside the scope of the present taxation net. A fifth review of the present IMF $11.3 billion Stand-By-Arrangement is due to take place in June when the request for a new loan would be presented. Finance Minister Dr Abdul Hafeez Shaikh, a well meaning and well intentioned economist, who needs greater political support at home, is scheduled to visit the United States from April 12 to attend the spring meetings of the IMF and the World Bank where he is expected to discuss the options for the new programme with the IMF officials in Washington. Negotiations for the next IMF loan programme will start right after the federal budget for the financial year 2011-12 is approved in June. Pakistan has been forced into the unpleasant situation that requires it to seek the new IMF programme to return the loans that it has so far obtained. A default in loan repayment has enormous and devastating consequences that have to be avoided. Although he is not an economist and does not enjoy their company, President Zardari is painfully and acutely aware of the consequences of default. Lacking other options, the President has reportedly advised his Finance Minister to explore securing further assistance from the IMF. The IMF and the Finance Ministry officials are, therefore, in the preliminary stages of negotiating the second loan programme. Islamabad is currently reviewing various options to begin repayments of the current $11.3 billion loan, of which Pakistan has received $8 billion. The last two tranches of the loan, worth $3.3 billion, were suspended after Pakistan failed to levy the Reformed General Sales Tax (RGST). The suspension of the loan sent a negative signal to the other international financial institutions and bilateral donors, who withheld their commitments. The covenant with the IMF requires Pakistan to pay over $1 billion in interest on the loans obtained from it. In addition, it will be required to repay the current loan from the Fund under the following schedule: $2.9 billion in 2013; $4.3 billion in 2014; $2.6 billion in 2015; and $430 million in 2016. While senior officials of the Finance Ministry are reluctant to discuss the specifics of the proposals under consideration by the government, it is admitted that Pakistan is considering a couple of options aimed at meeting its financing needs, whereas simultaneously giving a positive signal to the rest of the world about the countrys financial health and economic stability. The first option includes a revival of the suspended programme 'bridged with a new programme, or 'completing the suspended programme and 'getting a new one. Under this option, Pakistan would meet some of the IMFs conditions and obtain a tranche of $1.7 billion, marking an end to the existing programmes suspension. It may then request the IMF to convert the last tranche into a new programme. The size of the new loan programme will be directly linked to the strength of the countrys balance of payments for FY2011 and FY2012. The second option on the table includes terminating the existing programme and applying for a new one. This is least likely to be exercised, as it would send a very wrong signal to international creditors and stakeholders. Due to tensions in the Pak-US relations, possibilities exist that the government may fail to secure a second IMF programme. Improvement in these ties is indispensable and may have prompted the government to grant extension in contract to Ambassador Haqqani. He is seen by the federal government, as a key element in the ongoing dialogue with the US authorities. To repay IMF, Pakistan will have to deplete its foreign exchange reserves, which currently stand at about $17 billion. The step, if adopted, would strain the existing parity rate of Pakistani rupee against other currencies. The devaluation of Pakistani currency will make all imports costlier. Inflation already projected at 16 percent by the end of the financial year will assume runaway shape. Finance Secretary Dr Waqar Masood, who is both knowledgeable and experienced in dealing with the IMF, is reportedly of the view that the new IMF programme would front-load structural measures with back-loaded assistance and would hence demand the following from Pakistan: ? Implementation of tax reforms aimed at widening the tax base; ? Undertake power sector reforms aimed at addressing the issue of power sector circular debt; ? Limit government borrowings from the Central Bank; ? Keeping monetary expansion within limits and bounds; ? Need for 'ownership of the new IMF programme at the highest political and bureaucratic levels; ? Disallowing permission from the IMF to use any part of the new loan for budgetary purposes. These conditionalities will be difficult to implement. Even if some of them are implemented, they will impose additional hardship on an already oppressed people of Pakistan. The writer is a member of the former Civil Service of Pakistan. Email: