Pakistan to receive $1.13 billion from IMF on 18th: SBP

Sunday, May 16, 2010
By our correspondent

KARACHI: Pakistan will receive the fifth tranche of $1.13 billion from the International Monetary Fund (IMF) on May 18 (Tuesday), the State Bank of Pakistan (SBP) said on Saturday.

The inclusion of fresh disbursement would further increase in foreign exchange reserves, said SBP’s Chief Spokesman Syed Wasimuddin.

The foreign exchange reserves have increased to $15.357 billion by week ending May 7, 2010 due to $656 million released by the United States under the coalition support fund in the war against terrorism.

Ehe executive board of the IMF completed the fourth review of Pakistan’s economic performance under a program supported by a Standby Arrangement and approved $1.13 billion on Friday.

“The Board also approved re-phasing three remaining disbursements into two, while keeping the total access under the arrangement unchanged,” said an IMF press release issued from Washington where the board meeting was held on Friday.

The IMF board approved Pakistan’s request for waivers for the non-observance of two end-March 2010 quantitative performance criteria.

“These waivers were granted for overruns on the overall budget deficit and net government borrowing limits from the SBP on the grounds that their non-observance was in part due to a temporary factor-the delay in the disbursements of foreign financing-and that adequate remedial actions have been agreed upon to address the remaining slippage,” the release said.

In the fourth review the IMF board agreed to a request for modification of end-June 2010 performance criteria for the budget deficit to increase the cumulative end-quarter ceiling by 0.15 percent of GDP to allow space for urgent security outlays and avoid undue cuts in other priority spending, and to raise the floor for the net foreign assets of the SBP by $300 million given a strengthened external position.

The IMF approved the 23-month SBA about $7.61 on November 24, 2008. Later in August 7, 2009 the SBA was augmented to an amount $10.66 billion and extended to end 2010.

The IMF was satisfied with the country’s overall performance and improvement in economic scenario despite adverse security developments and a rapidly changing political environment. “Real GDP growth has begun to pick up and the external position has strengthened. Preparations for important and politically difficult tax reforms have moved forward, and there has been steady progress in financial sector reform,” said the release quoting Murilo Portugal, Deputy Managing Director and Acting Chair.

The IMF, however, expressed reservations on persistent inflation, security-relating spending pressures, energy sector problems, and shortfalls in revenue collection and external financing. “These challenges highlight the importance of pursuing a credible fiscal consolidation, maintaining a flexible exchange rate and a cautious stance to monetary policy, and improving governance,” Murilo said

Pakistani officials have assured the IMF of their commitment to proceed with legal and administrative steps to ensure that the Value Added Tax is introduced by July 1. “Its success depends crucially on prompt passage of consistent VAT laws by parliament and provincial assemblies, harmonization of other tax laws, and an effective refund system,” the IMF said.

The donor agency pointed out that achieving the 2009-10 fiscal target would require strong efforts, including from the political leadership. “Resolute continuation of tax collection efforts, tax administration reform, and expenditure restraint, together with timely disbursement of the pledged foreign financing will be critical to facilitate fiscal management,” the IMF chief said.

The risks posed by quasi-fiscal operations need to be addressed through reforming the electricity sector, cutting back losses at public enterprises, and managing losses from wheat procurement in a transparent manner, the IMF said. “Steps are being taken to ensure that commodity operations do not crowd out credit to the private sector.

“The Pakistani officials determined to accelerate the nationwide rollout of the new targeting system for social safety net, with a view to easing hardship in a period of high inflation and sluggish growth,” Murilo said.