IMF Eases Pakistan’s FY10 Budget Deficit Target to Boost Growth

May 12 (Bloomberg) -- The International Monetary Fund, which approved a $7.6 billion loan to Pakistan in November, has agreed to ease the country’s budget-deficit target to help boost economic growth.

“The slowing economy, additional donor support, and the need to protect priority expenditures call for a relaxation of the fiscal deficit target for 2009-10,” the IMF said in a statement yesterday. An increase in the target to 4.6 percent of gross domestic product from 3.4 percent “will provide fiscal space and boost growth,” the Washington-based lender said.

Pakistan’s economy has deteriorated in the past two years amid the highest interest rates in Asia and the nation’s fight against Taliban militants, which the United Nations says has forced one million people to flee their homes.

The government predicts the economy will expand 2.5 percent this fiscal year, the slowest pace in eight years, compared with annual average growth of 6.8 percent in the past five years.

The IMF said any cut in the central bank’s key interest rate “will await a significant decline in core inflation.” The lender also called for increasing the country’s tax-to-GDP ratio.

State Bank of Pakistan last month cut its benchmark lending rate by one percentage point to 14 percent to slow inflation.