Local news sources are reporting that the government of Pakistan has approached the Islamic Development Bank for an emergency loan to help cover a PKR110bn ($1.3bn) budget deficit.
The government has also asked domestic banks to pay their 2012 taxes early to help cover the fiscal shortfall after revenue projections were downgraded.
The new financial year begins July 1, but to date the government is well behind its target for collecting taxes and although government revenues increased 16% year-on-year, according to the its own figures, as of June 28 only PKR1.5tr ($17.2bn) of PKR1.6tr ($18.5bn) taxes had been collected.
However, the government had introduced a number of measures to try and boost revenue by PKR53bn ($617m), most controversially collecting taxes from domestic financial institutions for year 2011/12 early, so as to contribute to revenues for year 2010/11. However, according to Pakistan's Express Tribune one bank so far has objected to the government's demands for an early tax windfall and refused to co-operate.
As a fallback, the government has approached the IDB for a $160m bridging loan - but as this is a short-term measure, it will have to pay high interest rates (in comparison to Asian Development Bank or World Bank loans).
The government had hoped to raise $500m through a convertible loan backed by shares in the state-owned Oil & Gas Development Corp, the largest public company in Pakistan. However, it was advised to delay this due to unfavourable global financial conditions as markets struggle with the Greek debt crisis and uncertainty in the US.
© The Islamic Globe 2011
