IMF board clears second last loan tranche of $6.2 billion

Board’s decision to approve the tranche enables the immediate disbursement of an amount equivalent to $502 million

ISLAMABAD:

The executive board of the International Monetary Fund (IMF) on Friday approved the second last tranche of the $6.2 billion loan programme and relaxed a condition to allow the central bank to temporarily borrow more to meet the financing needs of China-Pakistan Economic Corridor (CPEC) projects.

The board’s decision to approve the tenth review of Pakistan’s economy for the period of October-December 2015 enables the immediate disbursement of an amount equivalent to $502 million. This will bring disbursements to $5.5 billion.





Finance Minister Ishaq Dar announced the board’s approval and hoped Pakistan will complete the remaining two reviews as well.

In September 2013, IMF had approved a three-year bailout package of $6.2 billion to help Islamabad repay its earlier loans and meet international obligations, to be disbursed in twelve equal tranches. This will be the second last loan tranche, although Pakistan still has to go through two more reviews to complete the programme.

IMF said Pakistan has met all quantitative performance criteria for the second quarter (October-December) of current fiscal year 2015-16. It over performed in the first half budget deficit target of Rs625 billion and increased net international reserves of State Bank of Pakistan to $9.3 billion.

IMF monitors progress on implementation of conditions through five quantitative performance criteria, three indicative targets and numerous structural benchmarks.

The IMF board also approved Pakistan’s request for modification in quantitative performance criteria on SBP’s stocks of net foreign currency swaps and forward positions for January-March quarter. For the current fiscal year 2015-16, IMF had imposed the ceiling on net foreign currency swaps and forward positions at $1.65 billion, according to IMF documents.

The ceiling on foreign currency swap has been relaxed to create more room for effective foreign currency and domestic liquidity management by SBP, said Tokhir Mirzoev, IMF’s country representative to Pakistan while talking to The Express Tribune.



Under the swap arrangement, SBP temporarily borrows from commercial banks in dollar terms for meeting certain obligations. IMF generally is not in favour of such short-term borrowings, as these could be used to artificially inflate foreign currency reserves. The additional space will be used for meeting requirements of CPEC and other pressing needs.

Next review

Pakistan and IMF will lock into negotiations for the 11th review from May 2 to May 11, said a finance ministry official. The government will share a blueprint of the new budget with IMF.

It will be the second last review that will pave the way for the release of the last remaining loan tranche.

In the next review, actions on all the issues that have been covered under the Extended Fund Facility (EFF) will be reviewed, said Mirzoev. To a question, the country representative said that the overall budget would be one of the main issues, which will come under discussion.

Finance ministry officials said Pakistan will seek relaxation in next fiscal year’s projected budget deficit ceiling of 3.5% of GDP by IMF. They said it will be difficult to cut expenditures in the next fiscal year as some senior party leaders think that the government should go on a spending splurge ahead of the next general elections to spur growth.

Published in The Express Tribune, March 26^th,  2016.