IMF approves release of $1.2 billion

WASHINGTON: The International Monetary Fund approved a $1.2 billion tranche for Pakistan on Wednesday after concluding a review of the country’s economic performance.

“It is of course important that Pakistan has full support from donors because they’ve had shocks to their economy over the past year,” Carline Atkinson, IMF’s director for external affairs, told an earlier briefing.

The IMF executive board met in Washington on Wednesday for the third review of its assistance to Pakistan and approved the fourth tranche of $1.2 billion.

An official at the Pakistan Embassy in Washington told Dawn that the entire amount would be deposited in the national foreign exchange reserve by Friday evening.

The review concluded that Pakistan had met the required targets.

The IMF expects Pakistan to bring its fiscal deficit to 4.9 per cent by the end of the current fiscal year. The fund had also set a target of 1.5 per cent for the first quarter, which began in July and ended in September 2009. Pakistan met this target.

The IMF also concluded that Pakistan was on track for meeting its revenue improvement targets, a total of Rs1,380 billion for the current fiscal year.

The IMF also expected Pakistan to cover its losses in the power sector, either by removing the causes that led to the losses or by increase the tariff. In October, Pakistan raised the power tariff by 4.4 per cent against the expected 6 per cent.

The government also eliminated subsidies on various items in order to keep its budget deficit down to 4.8 per cent of the GDP as required by the IMF under the loan agreement.

The tranche is part of an agreement with the fund under which Pakistan will receive a total of $11.3 billion to avert a balance of payments crisis and shore up reserves.

Pakistan had initially negotiated a $7.6 billion loan with the IMF in November 2008 but the loan was later increased to $11.3 billion in July 2009. The fund has so far disbursed more than $5 billion.

The IMF bailed out Pakistan in 2008 to avert a balance of payments crisis that, allied to budget and political concerns, had undermined investors’ faith in a country central to US efforts to confront Al Qaeda and settle a volatile region.

The economic performance review came as Pakistan officials sought to keep funds flowing from its $11.3 billion deal, and the IMF said that with the newest disbursement the total paid out had reached about $6.54 billion.

The fund said in November that Pakistan’s economy was showing signs of recovery although it noted that risks remained. Pakistani officials said the IMF’s concerns centred on the country’s security situation, along with poor tax collection and sluggish donor aid.

Along with the IMF help, Pakistan was promised $5.7 billion in aid over two years at a donors’ conference in April, but only a fraction of the funds has arrived as donors demand Pakistan to follow through on reforms