The IMF and Pakistani officials are meeting in Islamabad to discuss the possible release of the sixth tranche of an $11 billion emergency loan agreed in November 2008, which has kept the economy afloat. Talks end on Tuesday.
“Though things are not very good, it is still too early to say whether the sixth tranche is in danger,” an official source said.
If the IMF does not approve the release of the sixth tranche other donors would be hesitant to provide aid or loans, as well, which would threaten Pakistan’s economic stability.
“Staying in the IMF programme has a lot of signalling value to other donors, which the country is on the right track and is subject to quarterly reviews,” said Asif Qureshi, director at Invisor Securities Limited.
The reforms are politically sensitive for the unpopular government, which faces a host of problems, including a stubborn Taliban insurgency.
The task of securing foreign aid has become more urgent since devastating summer floods, which caused $9.7 billion in damages.
Failure to enact the reforms could undermine efforts to secure reconstruction aid and pile more pressure on the economy, which was already fragile before the disaster.
The last IMF review was completed in May and the review for the release of the sixth tranche has been delayed since August over several issues, such as an increase in the power tariff and the implementation of a reformed general sales tax (RGST).
The IMF wants Pakistan to do four things: introduce an RGST along the lines of a value-added tax to increase the tax base; reform the electricity sector to eliminate subsidies; resolve circular debt issue and address the quasi-fiscal implications of commodity credit.
Pakistan said in June that it would replace its general sales tax (GST) with the reformed general sales tax by October 1, but that deadline has slipped to December 1.ercent per month, according to official sources, to try to eliminate its spending of $2 billion annually on power subsidies.
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