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IMF loan facility extended to ease RGST pressure

December 28, 2010

WASHINGTON, Dec 27: The executive board of the International Monetary Fund approved on Monday a nine-month extension of Pakistan's standby loan arrangement to Sept 30, 2011.

“The extension will provide time to the Pakistani authorities to complete the reform of the general sales tax, implement measures to correct the course of fiscal policy, and amend the legislative framework for the financial sector,” the IMF said in a statement.

The fund noted that the extension was made on “a lapse-of-time basis”.

The IMF board takes decisions under its lapse of time procedure when it agrees that a proposal can be considered without convening formal discussions.

The IMF, however, continues its dialogue with the Pakistani authorities on the programme's fifth review, the statement said.

The 23-month loan arrangement of $7.61 billion was approved on Nov 24, 2008. On August 7, 2009, it was augmented to $10.66 billion and extended to Dec 30, 2010.

Following the completion of the fourth review in May 2010, the IMF approved an immediate disbursement of $1.13 billion, bringing total disbursements under the arrangement to $ 7.27 billion. The Board also approved rephasing three remaining disbursements into two, while keeping the total access under the arrangement unchanged.

The executive board also approved Pakistan's request for waivers for the non-observance of two end-March 2010 quantitative performance criteria.

Finance Minister Hafeez Shaikh told reporters earlier this week that Pakistan was seeking a nine-month extension for its loan facility from the IMF.

Although the facility was expiring at the end of December, a substantial portion of the loan was yet to be released because Pakistan failed to meet certain conditions relating to reforming sales tax laws, amending regulations for banking companies and eliminating energy subsidies.

The Pakistani economy, which has been battered by outbreaks of violence, was close to a balance-of-payments crisis in 2008 but was rescued by the IMF through the loan.

A report released earlier on Monday noted that Pakistan's fiscal deficit might exceed 7 per cent of economic output, endangering its standing with international donors, due to a delay in implementing a reformed general sales tax.