Bailout programme: Two combined IMF loan tranches likely in December

Pakistan, global lender agree to club 4th, 5th reviews.

ISLAMABAD: Pakistan has agreed to the International Monetary Fund’s (IMF) proposal to club the incomplete fourth review of the $6.7 billion loan with the programme’s fifth review, relenting from its earlier hostile stance towards the offer following a push from the United States.

The retreat will allow Islamabad to secure two loan tranches amounting to a total $1.1 billion by December this year, subject to implementation of all outstanding conditions set for the period of April-June and July-September.



The agreement was reached on the sidelines of the annual IMF-World Bank meetings in Washington just two days after Finance Minister Ishaq Dar met senior US administration officials. According to sources in diplomatic circles, the Obama administration ‘urged’ Islamabad not to abandon the one-year-old bailout programme at these meetings.

A statement issued by the IMF said its mission chief for Pakistan, Jeffery Franks, held meetings with Pakistani authorities during the fund’s annual meetings in Washington.

“During our discussions, we agreed to combine the fourth and fifth reviews with the view towards holding an IMF executive board meeting in early December which could make available two tranches totalling approximately $1.1 billion,” the statement read. It added an IMF mission will meet Pakistani authorities in Dubai late in October to carry out the review and hold necessary consultations.

Last month, Finance Minister Dar told The Express Tribune that he had turned down the IMF’s proposal to club the fourth and fifth reviews.

Despite holding talks for over two weeks in August this year, Pakistan and the IMF could not conclude the fourth review due to the government’s inability to meet the outstanding condition of increasing power tariffs by 7%. Fearing public backlash, the Pakistan Muslim League government decided against increasing power tariffs even though the deadline to notify the change had been extended by IMF till September 11.

The government is also facing problems on the privatisation front. It was supposed to sell 10% shares of the Oil and Gas Development Company Limited (OGDCL) by the end of September. Recently, however, the Khyber-Pakhtunkhwa government obtained a stay order against OGDCL divestment.

Although the stay was set aside by the Supreme Court last week, the government was allowed to only book orders for the shares and prevented from actually transferring them as long as the case is in progress.

According to sources, the government is also facing problems in meeting conditions set for the fifth review. Particularly, it is struggling to fulfill the conditions of net international reserves as the net foreign currency reserves held by the State Bank of Pakistan were below the level desired by the IMF.

The US Connection

Last week, Dar met the US Deputy Secretary of State William J Burns and Under Secretary of State for Economic Growth, Energy, and the Environment, Catherine Novelli.

According to a statement issued by the US embassy, “Pakistan highlighted its intention to continue working closely with the IMF to maintain progress on the reform agenda”.

Sources said the purpose of mentioning the IMF issue in the communique was to emphasise the importance of the IMF programme for the US. They added without an IMF programme, it would be difficult for the US to play its role as a major stakeholder in the WB and the IMF.

Published in The Express Tribune, October 13^th, 2014.