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IMF asks Pakistan to do more as second tranche is released

21 December, 2013

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ISLAMABAD: While approving $553 million second tranche for Pakistan, the IMF has asked Islamabad to consolidate fiscal adjustments, boost external buffers and deepen structural reforms.

Finance Minister Ishaq Dar also confirmed that Pakistan would receive the approved $553 million tranche of IMF on Monday.

He said that Pakistan would pursue structural reforms agreed with the IMF. Even if there were no IMF conditions, Pakistan should pursue structural reforms in order to obtain growth on a sustained basis.

At this difficult time, this approval will help boost the country's foreign currency reserves held by the State Bank of Pakistan to close to $4 billion.

The foreign currency reserves had declined to below $3 billion a few days ago and within last 10 days the reserves shot up by $1 billion and touched the $4 billion mark.

"Nonetheless, overall vulnerabilities remain high, and it will be crucial to consolidate the fiscal adjustment, boost external buffers, and deepen structural reforms," the IMF's executive board stated on the eve of approving the second tranche for Pakistan in its meeting held in Washington D.C.

The executive board completed the first review of Pakistan's economic performance under a three-year programme supported by an arrangement under the Extended Fund Facility (EFF). The completion of the review enables an immediate disbursement of an amount equivalent to SDR 360 million (about US$553.3 million).

The board approved the 36-month EFF arrangement worth SDR 4.393 billion (about US$6.75 billion, or 425 percent of Pakistan's quota at the IMF) on September 4, 2013.

In completing the first review, the board also approved the authorities' request for a waiver of non-observance of the end-September 2013 performance criterion on net international reserves (NIR) based on corrective actions taken by the authorities.

Ms. Nemat Shafik, deputy managing director and acting chair, said: "The authorities' performance under the Extended Fund Facility arrangement has been satisfactory. They have taken steps to address fiscal imbalances and structural issues in the energy sector. "A more ambitious approach is needed to improve tax administration and eliminate tax loopholes. The increase in electricity tariffs has reduced subsidies, but further efforts are needed to improve the energy sector's efficiency. It will be important to protect the most vulnerable population by avoiding slippages in targeted cash transfers.

"The low level of international reserves needs to be rebuilt. The central bank should use the policy tools at its disposal to boost reserves through policy rate adjustment, reserves purchases and greater exchange rate flexibility. The central bank will also need to address inflation once reserves begin to recover, for which greater central bank independence is essential.

"Policies to safeguard financial sector stability should continue, including addressing banks with capital below minimum requirements and with high non-performing loans and monitoring banks' holdings of government debt.

"The good start on structural reforms should be continued. It will be important to implement the authorities' privatisation plans for public sector enterprises. Improving the business climate and moving to a simpler and more transparent import tariff regime will also yield significant benefits," the IMF statement concluded.


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