IMF to release $550m by June 1

May 11, 2014

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- Reuters/File
- Reuters/File

ISLAMABAD: Pakistan and the International Monetary Fund (IMF) concluded negotiations on Saturday for grant of the fourth tranche of $550 million under the Extended Fund Facility (EFF).

Speaking at a press briefing at his ministry, Finance Minister Ishaq Dar said the major part of the negotiations was held in Dubai, but the final leg was conducted in Islamabad. After approval of the IMF Board, Pakistan would receive the amount by June 1, he added.

The IMF staff mission, led by Jeffrey Franks, was also present along with the finance minister, as were senior officials, including Finance Secretary Dr Waqar Masood, State Bank Governor Ashraf Wathra and Federal Board of Revenue Chairman Tariq Bajwa.

Senator Dar said Pakistan would get $2.2bn from the IMF during the current financial year, but added that it would also be repaying $3bn to the Fund, of which $1bn would be arranged from the country’s own resources.

He said the overall economy was on track, but there would be a shortfall in revenue collection. Therefore, the new target has been set at Rs2,275bn against the original benchmark of Rs2,345bn.

“There are genuine reasons for it and one of them is the rupee’s rising value against the dollar that has reduced import duties,” he added.

Revenue collection posted a 15 per cent increase during the last 10 months, reaching Rs1,745bn compared to Rs1,509bn during the same period last year. However, the minister added that the revised revenue collection target had been set at Rs2,275bn against the original target of Rs2,345bn for 2013-14.

DELICATE BALANCE: The head of the IMF mission, Jeffrey Franks, lauded the economic performance of the government, but at the same time suggested the State Bank should maintain a conservative monetary policy.

“Economic indicators are generally improving, with growth gaining momentum, external finance improving and credit to the private sector rising. But at the same time core and headline inflation are also rising,” he said.

Mr Franks said that the State Bank needed to maintain a delicate balance between growth and inflationary pressures, as the target should focus on additional reduction in inflation towards 6-7pc.

He said that the mission welcomed the government’s efforts to deepen its support to the poor through the Be­na­zir Income Support Prog­r­amme, and the commitment to ensure timely payments to 4.7m eligible families.

However, he added that the target on net domestic assets of the central bank was missed by a small margin, but the reform programmes remained broadly on track.

“Fiscal performance was strong during the first nine months of the year, but the government recognises an emerging revenue shortfall in April and is committed to taking the necessary compensatory actions to assure attainment of the end-year deficit target,” he added.

The IMF mission head praised the government’s efforts to broaden the tax net and develop a more efficient tax system, power sector reforms and the privatisation programmes.

“The mission supports the government’s ambitious privatisation agenda and encourages stronger reform efforts in loss-making companies remaining in the public sector,” Mr Franks added.

Earlier, Finance Minister Dar said the IMF had praised the economic policies of the government for its efforts to rectify imbalances committed during the previous regime.

He claimed that “prudent policies” had killed speculations that the country would face collapse before the beginning of the new financial year.

Mr Dar said the government aimed at increasing Gross Domestic Product, containing inflation, reducing poverty, creating job opportunities and putting the economy on a strong footing.

He presented an overview of the economy and said that the GDP growth had been recorded at 4.1pc during the last six months. Major push came from the agriculture sector as it posted a 2pc growth against the 1.4pc it achieved during the same period last year.

Similarly, Mr Dar added, the industrial sector grew by 5.4pc during the period under review, 2.9pc more than what it was last year. Services sector posted a 4.5pc growth compared to the first six months of 2013.

“The government plans to increase GDP growth target in the next three years to 4pc plus, 5pc plus and 6pc plus, respectively,” he said, adding that the “IMF had earlier projected a 3.1pc GDP but now it has revised it to 3.3pc while we are projecting it to 4pc during the current financial year.”

The minister said inflation over the past 10 months was registered at 8.7pc, but the IMF had projected it at 10pc in its second review. “However, we will further bring it down to 9pc, ”the finance minister said with confidence.

“We expect that by the end of the current financial year, inflation would be brought down to 8.8pc,” he added.

The minister said in the banking sector the IMF had observed that non-performing loans had decreased while the fiscal deficit would remain below 6pc by the close of the current fiscal.

He also said the government had already provided Rs232bn subsidy this year on electricity to lifeline users and vulnerable section of society using up to 200-300 units.

Mr Dar reiterated his commitment to consolidating foreign exchange reserves to $15bn by Sept 30, saying that the reserves had already reached around $13bn by Saturday.