IMF approves USD 1.2 bn for immediate disbursement to Pak

With this Pakistan has so far received USD 6.54 billion from the IMF under this programme supported by a Stand-By-Arrangement.

In November 2008, the IMF had approved about USD8.11 billion; which are being disbursed in phases; based on Pakistan's economic performance.

Noting that stabilisation was progressing on the macro front and appreciating the steps being taken by the government towards structural reform in putting in place the framework for moving toward a value-added tax; the IMF’s Mission Chief to Pakistan Adnan Mazarei said "significant challenges remain for the country".

The Executive Board also approved Pakistan's request for a waiver for the non-observance of the end-September performance criterion on the ceiling of the overall budget deficit, which was missed by a margin of 0.3 per cent of GDP.

After the approval, Deputy Managing Director and Acting Chair Takatoshi Kato said Pakistani authorities have made significant efforts to stay the course on stabilisation and structural reform against the backdrop of weak external demand and a difficult security and political environment.

"Inflation has declined, the external position strengthened, and tangible progress has been made in tax, electricity, and financial sector reforms.

"Nevertheless, Pakistan's vulnerabilities remain high, due notably to low revenue collection, large energy subsidies, and weak private sector credit," he said.
Kato said that a credible fiscal consolidation, supported by flexible interest rate and exchange rate policies, further structural reforms, and improved governance would be essential to reduce these vulnerabilities.

Noting that the fiscal slippage in the first quarter of 2009-10 was due partly to factors beyond the authorities' control, he said: "Adhering to the 2009-10 fiscal target—while challenging given security-related spending pressures would help build confidence, preserve macroeconomic stability, and limit the potential for crowding out the private sector.

"Resolute implementation of tax administration reforms and timely disbursement of the pledged foreign financing will help facilitate fiscal management and prevent excessive recourse to domestic borrowing and undue compression of social and development spending," he said.

Kato said the introduction of the VAT and associated administrative reforms, scheduled for July 1, 2010, was key to strengthening revenue, crucial for reducing poverty and financing needed investment in human and physical capital.