Dr Abdul Wahid Soomro (MNA Pakistan Peoples Party)

WASHINGTON: The IMF board approved on Wednesday a $450 million emergency assistance for flood recovery efforts in Pakistan.
This will be a single-tranche assistance, which means that Pakistan will get the entire amount in one instalment.

The IMF board, which met in Washington, is expected to send the papers to Pakistan before Friday and the disbursement may begin next month.

The IMF had pledged this emergency assistance in a meeting with Pakistani officials in Washington in the last week of August. The IMF is also scheduled to hold the fifth review of an existing $11.3 billion loan arrangement in October.

The decision, taken after a series of meetings between Pakistani and IMF officials in Washington, removes the risk that the fund may delay or withhold future payments because of Pakistan’s inability to implement some of the conditions on time.

The sources said that the IMF had agreed not to attach new performance criteria or benchmarks to the loan programme initially negotiated in 2008.

Pakistan, however, is still required to meet the four existing conditions of tax and energy sector reforms, granting autonomy to the State Bank and fulfilling its promise to bring the fiscal deficit to four per cent during the current budgetary year.

The fifth review will be held in October, which will then go to the IMF board in November and Pakistan is likely to get the next tranche of about $1.2 billion within the current fiscal year.

Earlier, IMF’s Deputy Director of External Relations Gerry Rice assured Islamabad that the fund wanted to “do as much as we can to help Pakistan at this time, by whatever means”.

IMF’s Director for Middle East and Central Asia Department Masood Ahmed offered similar assurances while promising an emergency assistance of $450 million earlier this month.

Despite these promises of support, a document released by the IMF during the talks indicated that the fund was not satisfied with Pakistan’s pre-flood performance.

While noting that the IMF-Pakistan loan programme “got off to a good start and Pakistan’s economy has made progress towards stabilisation”, the document notes that the Pakistani economy was once again on a slippery slope.

It urges Pakistan to treat external support only “as a bridge to a greater domestic revenue effort”, which will be indispensable to sustain development spending, achieve poverty reduction, and increase much-needed social outlays over the medium-term. In this regard, the IMF reminds Pakistan that “the introduction of a broad-based value-added tax is essential”.

The document notes that while there has been some progress towards the reform in the electricity sector, “more needs to be done to eliminate the financial losses of electricity companies and other public enterprises”.

According to the document, inflation has been on the rise again and reached 13 per cent in March 2010. Pakistan’s fiscal policy continues to be affected by low economic activity and a difficult security environment.

The document notes that Pakistani authorities have been striving to maintain fiscal discipline by eliminating non-priority spending.

“Such efforts proved initially successful, but since June 2009 the authorities have repeatedly exceeded the quarterly budget deficit targets under the IMF programme.”
Sources