Finance secretary says that the installment will be disbursed this week. PHOTO: FILE
The International Monetary Fund’s executive board approved on Monday the third loan tranche of $540 million for Pakistan and handed it two waivers, despite the country’s failure to fulfill preset conditions to reduce its debt.
The waivers, second in as many reviews of the $6.7 billion bailout package, reflects IMF’s leniency towards Islamabad. However, raising speculations over the programme’s future, analyst are linking the continuous US support for the bailout package with the upcoming withdrawal of its forces from Afghanistan.
According to credible sources, Washington has recorded certain negative comments on a staff level report prepared by the IMF team following the second review programme.
During Monday’s meeting in Washington, IMF’s executive board members were presented with a report card on Pakistan’s economy for the period of July-December 2013 by a team led by Jeffery Franks, the Washington-based mission chief for Islamabad.
With the approval of the third tranche, the Washington-based lender has so far given $1.65 billion to Pakistan out of committed $6.7 billion, which will be disbursed over a period of three years in twelve equal tranches.
While talking to The Express Tribune, an upbeat Finance Secretary Dr Waqar Masood confirmed that the third installment will be disbursed within this week.
The release will further shore up the country’s foreign currency reserves, which have recently received a lifeline from Saudi Arabia via a $1.5 billion “gift”.
According to a finance ministry official, IMF’s executive board also approved Rs11 billion or 15% reduction in spending on targeted cash-transfer programmes under the Benazir Income Support Programme (BISP).
The reduction was allowed after Pakistan could disburse only Rs16 billion among BISP beneficiaries by end of December as against the target of Rs32 billion. The end-March target has also been slightly revised downwards to Rs48 billion.
However, the official insisted that the Rs11 billion spending will be made on other poverty eradication programmes announced by Prime Minister Nawaz Sharif.
Earlier, the IMF’s executive board waived the end-December condition of reducing the government’s borrowings from State Bank of Pakistan to Rs2.56 trillion. The actual borrowings remained at Rs2.611 trillion, Rs51 billion higher than the IMF’s ceiling. The borrowings swelled after the tax collection fell short of the target.
Additionally, the IMF board also waived the condition of lowering SBP’s borrowings of US dollars from the commercial banks and China, known as forward contracts, to $2.255 billion, set for end-December 2013. The actual SBP’s borrowings under forward contracts stood at $2.6 billion, $345 million higher than the IMF’s ceiling. It has now asked Pakistan to reduce the forward contract limit to $2.255 billion by end March and further to $2.150 billion by end-June.
Following the first review of the programme, IMF granted waiver on the condition of building Net International Reserves (NIR) target, set for end-September of last year.
Sources privy with the development said the IMF was irked by Pakistan’s blanket tax amnesty scheme, granted to affluent industrialists. The Washington-based lender was of the view that the amnesty scheme may in short term increase the state revenues but will further create distortions in the longer run.
The IMF also raised concerns over the government’s intervention in the exchange rate market and observed that in the long run playing with the rupee-dollar parity will create balance of payment problems.
Published in The Express Tribune, March 25th, 2014.
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