Hafeez says IMF assures next tranche on May 14

WASHINGTON: Finance Adviser Dr Abdul Hafeez Sheikh has said that an arrangement with the International Monetary Fund compels Islamabad to increase power tariff by additional six per cent but the government is trying not to pass on the entire burden on consumers.

Dr Hafeez explained at a news conference here on Tuesday that the agreement required Pakistan to increase power tariff in three instalments of six, 12 and six per cent, respectively.

The government has already made the first two adjustments and will have to make the third and final adjustment as well.

“The arrangement with the IMF is already there on the internet and can be checked by anyone who desires to do so,” said the advisor.

“We have to fulfil our commitment to the donors,” he added, “and the six per cent increase can have an impact on the consumers.”

Dr Hafeez and other senior Pakistani officials were in Washington this week for spring meetings of the IMF and also spoke to the World Bank and the Asian Development Bank over steps Islamabad had taken to raise electricity tariffs and other taxes that are unpopular with the public and politically risky for the government.

Aware of negative repercussions of an increase in power tariff, the advisor assured consumers that there would be no additional burden on them once the arrangement with the IMF is fully implemented.

The government, he said, was also working on various proposals for distributing the burden of this increase so that it did not over-burden the consumers. “Currently, we are focusing on non-tariff aspects,” he added.

Earlier, the IMF urged Pakistan to ensure that the Asian Development Bank and the World Bank do not stop $900 million assistance for economic and energy reforms.

The IMF sought this assurance after Pakistan failed to implement a six per cent increase in power tariff from April 1, as agreed. This led to speculations that the ADB and the WB may withdraw the proposed assistance over this issue.

There were earlier indications that the government may back out of implementing the last six per cent increase from April 1 because it feared that increasing tariff amid massive power cuts would lead to more protests. There have already been a series of violent protests across the country over this issue.

IMF tranche

The advisor said the IMF board will meet in Washington on May 14 to consider the next tranche of Pakistan’s $11.3 billion loan.

He said IMF officials have assured him that the board will approve the release of fifth tranche of $1.3 billion as Pakistan has fulfilled all the requirements.

In November 2008, the IMF agreed to loan $7.6 billion to Pakistan to avert a balance of payments crisis and shore up the country’s reserves. The loan was further increased to $11.3 billion.

IMF sources say that while international financial institutions were persuading Pakistan to implement its obligations, they appear willing to show some flexibility to avoid because they understood Islamabad was in a tight political and fiscal spot.

Multi-donor Fund

At his briefing at the Pakistan Embassy, Dr Hafeez Sheikh said the World Bank had also agreed to administer a new multi-donor fund with an initial commitment of $110 million from donors for development in border regions of Federally Administered Tribal Areas (FATA), Khyber Pakhtoonkhwa and Balochistan.

The new multi-donor fund will include contributions from small donors that do not have presence in Pakistan but want to spur economic development of the country, widely seen as key partner of the international in peace and security efforts. The fund is likely to grow further with more international support.

IBRD financing

The World Bank has also pledged to resume the IBRD financing in infrastructure projects and the bank’s president, Robert Zoellick, also showed interest in fast-tracking projects to establish links with resource-rich Central Asia.

Similarly, the International Finance Corporation agreed to boost its portfolio to $1 billion the highest level in Pakistan so far. This fund will be available for energy, agri-business, financing, housing, private-public partnership and alternate energy, especially wind power.


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