IMF Board okays $6.64 billions for Pakistan

Ishfaq Ahmed Mughal

International Monetary Fund's (IMF) Executive Board has approved 3-year $6.64 billion loan afte the assurace by the Pakistani authorities to implement some unpopular stepts including the recovery losses from electricity consumers, partially privatization of PIA, Pakistan Still Mills and Pakistan Railways and introductions of gas levy etc. 

Pakistan says it is moving farward with eliminating the
the negative list on trade with India and extending mo-

st favored nation status.

The Executive Board approved the loan for Pakistan in an amount equivalent to SDR 4.393 billion (US$6.64 billion, or 425 percent of Pakistan’s quota) to support the country’s economic reform program to promote inclusive growth. The Executive Board’s approval enables an initial disbursement by the IMF of an amount equivalent to SDR 360 million (about US$544.5 million), and the remaining amount will be evenly disbursed over the duration of the program, subject to the completion of quarterly reviews. 

“Pakistan is facing serious economic challenges. Overall vulnerabilities and crisis risks are high, with subpar growth and unsustainable fiscal and balance of payments positions. In this context, the authorities’ comprehensive economic program is timely and welcome, Ms. Nemat Shafik, Deputy Managing Director and Acting Chair, said in her statement.

“The authorities’ 2013/14 federal budget represents an important initial step towards the needed fiscal consolidation. However, to ensure medium-term fiscal sustainability and create fiscal space for social and investment spending, it is important to raise the tax-to-GDP ratio, including by broadening the tax base through a reduction in exemptions and concessions and extending taxation to areas currently not fully covered by the tax net. An overhaul of tax administration is also required, and provinces should contribute fully to the adjustment effort.

“Monetary and exchange rate policies should be geared to rebuilding external buffers, direct lending to the government should cease and efforts to improve independence of monetary policy need to be stepped up to pave the way for improved price stability. Risks to the banking sector are manageable, although the undercapitalization of vulnerable banks needs to be addressed.

Earlier, Pakistan Government presented a Memorandum of Economic and Financial Policies (MEFP) before IMF to get the fresh loan. 

In the memorandum, the government assured the Funda gas levy will be levied on consumers to raise additional revenue 0.4 percent of GDP (almost Rs104 billion), while the government will spend less during first nine months of the fiscal to save Rs130 billion, hurting grown prospects.

We are moving forward with eliminating the negative list on trade with India and extending India most favored nation status, and shifting to “sensitive list” under SAFTA regime to facilitate increased regional trade. We will begin working on simplifying the tariff structure to return to the 2003 framework, with 4 slabs and 0 to 25 percent rates. Design of the new system would be completed by end-December 2013, with application of the revised tariff rates and begin the phase-out of trade SROs by June 2014. Implementation of the new trade framework would be completed by end-June 2016" said in MEFP.

On the monetary policy front, the State Bank of Pakistan is likely to increase interest rates in new monetary policy which will be anounced on nex week. 

Similarly, the government is also likely to announce a plan to restructure 65 state owned enterprises. The restructuring of 30 firms will be announced before end of September and rest before end December, with the government assuring the IMF that “non-viable firms” will be closed down. In one instance, Pakistan International Airlines (PIA) is likely to be broken up into two separate entities, with one being wind down by end of June 2014 and the other receiving a fresh bailout package combined with the privatisation of 26% of government shares in PIA.