WASHINGTON, Aug 14: Pakistan government has assured the International Monetary Fund (IMF) that it remains committed to implementing the economic strategy set out in the Poverty Reduction Paper (PRSP) , supported by the Poverty Reduction and Growth Facility (PRGF) arrangement.
"The strategy aims to create an enabling environment for sustained high growth, job creation, and poverty reduction."
This is stated in a letter of intent, memorandum of economic and financial policies, and amendments to the technical memorandum of understanding addressed to Rodrigo de Rato, Managing Director, International Monetary Fund.
The document is signed by Finance Minister Shaukat Aziz and State Bank Governor Ishrat Husain, and posted on the IMF website on Friday.
About the talks they held with the IMF during its April 2004 meetings in Washington, they said that they held discussions with Fund staff for the eighth review under the PRGF arrangement."
"In the light of these discussions, the attached Memorandum on Economic and Financial Policies (MEFP) reviews economic developments and policy implementation through December 2003 and beyond under the arrangement, updates the macroeconomic framework, and discusses the financial policies and the structural reform programme for the remainder of 2004."
The joint letter says, all quantitative performance criteria for end-December 2003 were met. Moreover, structural performance criteria were met, except for minor deviations on (a) effective transfer of ownership of Habib Bank Limited by end-December 2003; (b) preparation of an action plan by end-October 2003 for establishing a transparent regulatory framework for regional electricity tariff setting by end-December 2003; (c) notification of electricity tariff adjustments within 30 days of the determination by the National Electric Power Regulatory Agency (Nepra); (d) not implementing downward electricity tariff adjustment determined by Nepra unless the respective utility met its accrual balance target in the previous quarter.
The effective transfer of ownership of Habib Bank Limited took place in February 2004 upon request of the investor, although we had accepted the bid on December 29, 2003. While we had prepared the action plan for establishing a transparent electricity tariff policy in October 2003, the announcement of the electricity tariff guidelines for Nepra was delayed until May 2004 to allow for comprehensive discussions with the World Bank on developing a financial recovery plan for the power sector.
The downward tariff adjustment for the Karachi Electric Supply Company (KESC), determined by Nepra in mid-January 2004, was notified only in mid-April after we had confirmed that the accrual balance of the preceding quarter was met and to allow time for discussions on the overall subsidy policy. Finally, we notified a downward electricity tariff adjustment for the Water and Power Development Authority (Wapda) in November 2003, even though Wapda missed its accrual balance target for end-September 2003, albeit by a very small margin. However, we delayed the notification until we were confident that Wapda would meet its cumulative end-December 2003 target, which it did by a comfortable margin.
They disclosed that the government has also reassessed its needs for external non-concessional borrowing. In particular, a larger-than-expected guarantee for external borrowing by Pakistan International Airlines (PIA) has been provided on favourable terms to proceed with its fleet renewal and build on its successful business turnaround. PIA should be able to service this loan out of its own resources. To accommodate this guarantee, the $500 million Eurobond issue and other smaller loans, we would need to increase the ceiling on contracting of non-concessional loans to $1 billion, still less than prepayment of expensive external debt that we effected earlier this year.
On this basis, and in view of the policies set out in the attached MEFP, including the measures to strengthen our power sector reform strategy, the government requests waivers for the nonobservance of the structural performance criteria listed above, modification of the performance criterion discussed above, and the completion of the eighth review.
They said the government will provide the Fund with such information as the Fund may request in connection with Pakistan's progress in implementing the economic and financial policies, and achieving the objectives of the programme.
The government believes that the policies set out in the attached MEFP are adequate to achieve the objectives of the programme, but will take any further measures that may become appropriate for this purpose.
"The government of Pakistan will consult the Fund on the adoption of these measures, and in advance of revisions to the policies contained in the MEFP, in accordance with the Fund's policies on such consultation," it added.-APP