IMF to release seventh tranche of $501m

Total releases under Extended Fund Facility to reach $3.7 billion

ISLAMABAD:

The International Monetary Fund on Friday approved the release of $501.4 million to Pakistan, praising the country for the efforts that it was making to stabilise the economy and urging the government to continue reforms.

The decision to approve the seventh loan tranche worth $501.4 million was taken by the Executive Board of the IMF in a meeting held in Washington. The approval was already anticipated, as the government had comfortably met all the conditions set for the October-December 2014 period. The IMF Board also approved the sixth review of Pakistan’s economy.

It was the first time in the last 18 months that the country had a smooth sailing in an IMF Executive Board meeting. Unlike in the past five reviews when the board had to waive about a dozen conditions, this time Pakistan did not require any waiver. After this review and disbursement, the total disbursements under the current bailout programme would now reach $3.7 billion.

The government had met all the five performance criteria relating to targets for Net International Reserves (NIR), Net Domestic Assets (NDA), reducing general borrowing, reducing borrowings for budgetary support from State Bank of Pakistan, and fulfilling the condition on debt swap arrangements.

However, to meet the target on reducing borrowings from the central bank, the government borrowed over Rs1 trillion from the commercial banks from July through February. The SBP helped the commercial banks in providing loans to the federal government by injecting over Rs1 trillion of liquidity into the banking system. In essence, the banks lent money to the federal government by borrowing from the SBP.



Hubert Temmeyer, the IMF executive director from Germany, was quoted as saying that he was pleasantly surprised that Pakistan had met all the performance criteria and did not need a waiver. The executive directors commended Pakistan for attaining all performance criteria and urged the government to continue reforms, said the IMF.

Pakistan and the IMF entered a three-year Extended Fund Facility amounting to $6.6 billion in September 2013 aimed at introducing critical reforms to stabilise economy and avoid default on international payments. So far, the government has managed to stabilise the economy but it needs serious and concentrated efforts to put the economy on a path of sustainable growth, according to a recent report from the Asian Development Bank.

With release of this tranche next week, the country’s total foreign currency reserves would touch $16.7 billion. The State Bank of Pakistan’s reserves would increase to $11.6 billion.

Modification in NIR condition

The IMF Executive Board also imposed a more stringent performance criterion of net international reserves, or the net foreign currency reserves held by the SBP. The Fund has increased the limit by another $600 million, a move that will require the SBP to redouble its efforts to meet the revised targets for January-March and April-June periods. It will have to purchase the dollars from the spot market.

Earlier, the government’s March NIR target was $4.5 billion, which will now be increased to over $5.2 billion. Similarly, the June target of $5.7 billion has also been revised upward.  Although, the SBP achieved its December NIR target, it had missed the September target by $630 million due to delays in privatisations, despite significant foreign exchange spot purchases.

Pakistan had also committed with the IMF to introduce reforms in energy and taxation, areas where it has so far failed to bring about any change. The energy shortages are hurting economic growth and the government has remained unable to resolve the issue of the energy sector’s inter-corporate circular debt. There was also no significant progress on tax collection and the government has not been able to broaden the income tax base.


Published in The Express Tribune, March 28^th, 2015.