December 29, 2001	Saturday	Shawwal 13, 1422

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ISLAMABAD, Dec 28: The International Monetary Fund (IMF) wants Pakistan to implement a set of conditionalities, including ensuring fiscal transparency and improving governance, to keep receiving uninterrupted flow of funds under a three-year $1.3 billion Poverty Reduction Growth Facility (PRGF) programme.

According to a latest IMF document, the key priorities for the PRGF-supported programme should include: an ambitious and credible action plan to reform tax administration and improve tax collection; quantitative and qualitative improvements in public poverty-related spending and in the delivery and monitoring of basic social services; continued efforts to improve governance and fiscal transparency; a clear and public strategy for any transition to a financial system consistent with Islamic principles; deepening of the foreign exchange inter-bank market to allow phasing out of the State Bank’s kerb market purchases; reform and privatisation of major commercial banks and public enterprise; and mobilisation of concessional resources to help Pakistan to get out of the debt trap.

Performance under the recently expired Stand-by Arrangement has established a good track record of macro-economic policy and structural reforms implementation. “However, Pakistan has yet to build a viable modern tax system and tackle widespread poverty, and weaknesses in the basic social services,” the document added.

The reform agenda under the proposed PRGF arrangement and the Interim Poverty Reduction Strategy Paper (I-PRSP) is aimed at raising GDP growth to Pakistan’s potential of at least 6 per cent within few years, while ensuring that the benefits are widely shared by the poor.

The IMF expects from the country’s central bank to maintain prudent monetary policy under the floating exchange rate regime to keep its 5 per cent inflation target and build up international reserves to at least three months of imports at the end of the three-year PRGF programme. The programme envisages further exchange rate liberalization and integration of the inter-bank and kerb markets.

The main risk to the programme, the Fund officials believe, would arise from a prolongation of the regional conflict, which could adversely affect growth, trade and investment and intensify budgetary pressures. Other risks include resistance from interest groups affected by the planned reforms, and limited administrative capacity to implement certain aspects of the programme. However, recognizing such uncertainties, the programme includes a number of contingency measures to protect fiscal and external balances.

The success of the economic reform programme depends, to a considerable extent, on measures to address the large external debt burden.

The IMF believes that the military government that took office in October, 1999, has candidly taken stock of the economic weaknesses besetting Pakistan, including poor governance and weak social indicators. It has also made a strong start in addressing many of the long-standing structural problems facing the economy and bringing the country back on the path of higher growth, sustainable development and reduced poverty. Pakistan’s achievements under the more recent 10-month Standby Arrangement, that expired in September, 2001, are encouraging.