Reforms on track: IMF clears release of second $550m tranche

Lender cautions Pakistan to act quickly to build up its foreign exchange reserves.

ISLAMABAD:

The International Monetary Fund (IMF) on Thursday approved the release of the second tranche of the $6.7 billion loan package to Pakistan and said the country was broadly on track with reforms tied to the programme.

The lender, however, cautioned that Islamabad would have to act quickly to rebuild the country’s dwindling foreign exchange reserves.

The IMF executive board, which met in Washington, showed leniency while approving the release of the $550 million tranche. It waived a condition related to Pakistan’s net international reserves – the country had been unable to meet the target agreed upon with the IMF for the first quarter of 2013-14. The release of the second tranche would never have been approved had the condition not been waived.



Earlier, between October 28 and November 8, an IMF team visited Pakistan and held meetings with senior finance ministry and State Bank of Pakistan (SBP) officials as part of the first review of the three-year Extended Fund Facility (EFF).

Sources told The Express Tribune that some board members were quite critical about reforms in taxation. They said some of the executive directors observed that Pakistan needed to take urgent measures to broaden the tax base, which remains narrow. They were apprehensive about the reversal of some policy actions, the sources added.

The members of the board also observed that the central bank will have to take urgent measures to build its foreign currency reserves. They stressed the need to take necessary measures to control inflation.



The IMF approved the $6.7 billion loan for Pakistan in September this year and released the first tranche of $547 million around the same time. Future payments of the loan were made dependent on the completion of tough economic reforms and performance in this regard would be reviewed by the IMF staff every quarter.

The second review of the IMF programme will take place in January and will pave the way for the release of third tranche of $550 million in March. It is expected to be tougher than the first review meeting due to the objections raised by the board members.

However, according to some analysts, Pakistan will not have any major problem until the fourth review. The progress from there onwards will depend upon some major policy actions, including the privatisation of state owned entities – mainly Pakistan International Airlines and Pakistan Steel Mills.

While talking to The Express Tribune, Finance Minister Ishaq Dar said that the government did its best to implement the reforms agreed with the IMF. He said the second tranche was expected to be disbursed by the IMF on the next working day.

In the wake of the latest disbursal, the country’s reserves will cross the $4 billion mark again. The reserves dropped below the $2.9 billion level last month due to heavy repayments to the IMF.

Till December 13, the official foreign currency reserves had increased to $3.467 billion on the back of short-term loans from international lending agencies and the SBP’s purchase of dollars from the open market. Meanwhile, Finance Secretary Dr Waqar Masood said the government was on course to put the country’s economy back on track and would not stray from its path of reforms.

The federal government claimed an early victory last week and said Pakistan’s economy grew at a pace of 5% during the first quarter of the current financial year. The average growth rate in the last five years remained at 3%.


Published in The Express Tribune, December 20^th, 2013.