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IMF likely to clear third tranche

10 February, 2014

ISLAMABAD: International Monetary Fund's mission chief to Pakistan Jeffery Franks said on Sunday that Islamabad had committed to withdraw the remaining electricity subsidies in two years while protecting the lowest level of consumers.

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ISLAMABAD: International Monetary Fund's mission chief to Pakistan Jeffery Franks said on Sunday that Islamabad had committed to withdraw the remaining electricity subsidies in two years while protecting the lowest level of consumers.

In the first phase, Pakistan's National Electric Power Regulatory Authority (Nepra) has given final touches to the 2013-14 power tariff determination, said Franks in a telephone interview with Our Sources from Dubai.

Franks and his team had been locked in negotiations with Finance Minister Ishaq Dar for the last 10 days, which culminated in the successful completion of the second review, paving the way for approval of a $550 million third loan tranche by the IMF executive board. "The board is expected to meet by the end of next month to approve the loan tranche," said Franks. Franks said that under determination, power tariffs would not have much impact on electricity prices. But Franks did not disclose when this year's increase will be implemented.

Pakistan has already increased power tariffs significantly for all categories of consumers but no progress has been made on reducing line losses and improving recovery, according to energy experts.

According to Pakistani officials, the electricity prices would be increased from the day NEPRA notifies, a move expected to take place next month. They added that NEPRA has so far determined power tariffs for five power distribution companies while tariffs of the remaining four would soon be announced.

"Going forward, for the 2014-15 budget, the government will have to look into tariff differential subsidies," said Franks. The government has committed that over the next two years the power subsidies will be phased out so that budget subsidies will be maintained only at the lowest consumer level.

The major increase in electricity prices will be implemented from July including the withdrawal of the remaining subsidies from all sectors including industrial and commercial, said Pakistani authorities.

"Timely implementation of reform measures articulated in the National Energy Policy is of high priority in ensuring affordable and reliable supply of energy", according to a handout issued by the IMF.

IMF increased its forecast of inflation from 7.9% to 10% while expecting that inflation will soon bounce back. It also marginally increased economic growth projections to 3.1% from 2.8%.

Franks said the IMF staff has agreed that Pakistan can request the executive board to grant it two waivers on SBP's net swap forward positions and the ceiling on government borrowing from SBP.

The government has also committed to bringing down the borrowing level from the SBP.

"While waivers are a common occurrence in fund programmes, we would prefer it if no waiver is sought," said Franks.

"The reform programme remains broadly on track," stated the official handout of the IMF. It added that IMF was encouraged by the overall progress made in pushing ahead with policies to strengthen macroeconomic stability and reviving economic growth. It said Pakistan's economy was showing signs of improved economic activity.

Franks said the government was in good shape to achieve 5.8% of Gross Domestic Product budget deficit target.

However, the IMF has revised current account deficit projection but Net International Reserves target remains unchanged, Franks added. On the external side, IMF said the foreign exchange market has stabilised, pressures on the balance of payments are likely to persist for some months.

Franks said the focus of initial privatisation transactions is on selling government's minority shares and this target is ambitious but achievable by the end of June 2014.

The IMF stressed for the need of decisive efforts to broaden the tax net through the elimination of tax exemptions and loopholes granted through Statutory Regulatory Orders (SROs) are critical to the future of Pakistan's economy.

End.


 
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