10-05-2010, 01:39 PM
ISLAMABAD: The government is considering to wind up the Standby Arrangement (SBA) with the International Monetary Fund (IMF) on a “positive note” after meeting all conditionalities and receiving the next $1.7 billion tranche in November-December this year.
Informed sources said the authorities hoped to meet the remaining major conditions of the IMF programme, including introduction of a broad-based reformed general sales tax (RGST) and energy sector reforms during the current quarter (October-December) and complete the fifth review in October-November.
The review would enable the authorities to draw another tranche of about $1.7 billion before end-December this year.
A government official said that the authorities had discussed the option in internal meetings and a final decision about the termination of the SBA would be made by November this year keeping in view the economic situation at that time.
With the completion of the fifth review and release of $1.7 billion, Pakistan’s remaining share of the $11 billion SBA programme would come down to about $1.7 billion that the authorities now consider not to avail.
Pakistan’s foreign exchange reserves increased last week to about $16.75 billion, enough to cover more than five months’ imports. Robust remittances from overseas Pakistanis and lower than previous years’ trade deficit had given confidence to the authorities to discuss a pre-mature completion of the programme, the sources said.
They said that the proposal to conclude the IMF programme had three positive aspects. One, the government would be able to adjust repayment of about $1.2 billion due to the IMF during the current fiscal year against the last IMF’s tranche, instead of piling up more loans.
Second, it would give a positive signal to the international capital market that Pakistan’s economy was stable enough to meet its programme criteria and international obligations despite devastations caused by floods.
Third, the sources said, the government would be able to negotiate a fresh programme with the IMF, if need arose at a later stage, on the strength of an earlier successful programme completion.
Pakistan had terminated an IMF programme prematurely during former prime minister Shaukat Aziz’s tenure on a positive note after successful completion of programme’s conditionalities and had given up its right to draw last tranche of the programme. That was the only IMF programme, out of seven arrangements, Pakistan had successfully completed and started repayments ahead of time.
The 23-month $7.6 billion SBA was originally approved by the IMF’s executive board in November 2008 on the request of former finance minister Shaukat Tarin and on the basis of a stabilization programme which was augmented in August 2009 to $11.3 billion for 25 months because of shortfalls in international aid flows following a cold response from the Friends of Democratic Pakistan (FoDP).
Pakistan has so far received about $7.3 billion under the SBA with the completion of fourth review in May this year. Since then the IMF has withheld payments of the remaining three instalments because of continuous slippages on performance criteria.
A few months ago, Pakistan and the IMF had agreed to merge three instalments of $1.2 billion each into two tranches of $1.7 billion each but the releases could not be made when Pakistan did not introduce the value-added tax with effect from July 1, 2010, or complete the power sector reforms as committed to the IMF, the World Bank and the Asian Development Bank.
The SBA was meant to restore financial stability through a tightening of fiscal and monetary policies to bring down inflation and strengthen foreign currency reserves, protect the poor by strengthening the social safety net and raise budgetary revenues through comprehensive tax reforms (VAT) to enable significant increases in public investment and social spending required for achieving sustainable growth.
Informed sources said the authorities hoped to meet the remaining major conditions of the IMF programme, including introduction of a broad-based reformed general sales tax (RGST) and energy sector reforms during the current quarter (October-December) and complete the fifth review in October-November.
The review would enable the authorities to draw another tranche of about $1.7 billion before end-December this year.
A government official said that the authorities had discussed the option in internal meetings and a final decision about the termination of the SBA would be made by November this year keeping in view the economic situation at that time.
With the completion of the fifth review and release of $1.7 billion, Pakistan’s remaining share of the $11 billion SBA programme would come down to about $1.7 billion that the authorities now consider not to avail.
Pakistan’s foreign exchange reserves increased last week to about $16.75 billion, enough to cover more than five months’ imports. Robust remittances from overseas Pakistanis and lower than previous years’ trade deficit had given confidence to the authorities to discuss a pre-mature completion of the programme, the sources said.
They said that the proposal to conclude the IMF programme had three positive aspects. One, the government would be able to adjust repayment of about $1.2 billion due to the IMF during the current fiscal year against the last IMF’s tranche, instead of piling up more loans.
Second, it would give a positive signal to the international capital market that Pakistan’s economy was stable enough to meet its programme criteria and international obligations despite devastations caused by floods.
Third, the sources said, the government would be able to negotiate a fresh programme with the IMF, if need arose at a later stage, on the strength of an earlier successful programme completion.
Pakistan had terminated an IMF programme prematurely during former prime minister Shaukat Aziz’s tenure on a positive note after successful completion of programme’s conditionalities and had given up its right to draw last tranche of the programme. That was the only IMF programme, out of seven arrangements, Pakistan had successfully completed and started repayments ahead of time.
The 23-month $7.6 billion SBA was originally approved by the IMF’s executive board in November 2008 on the request of former finance minister Shaukat Tarin and on the basis of a stabilization programme which was augmented in August 2009 to $11.3 billion for 25 months because of shortfalls in international aid flows following a cold response from the Friends of Democratic Pakistan (FoDP).
Pakistan has so far received about $7.3 billion under the SBA with the completion of fourth review in May this year. Since then the IMF has withheld payments of the remaining three instalments because of continuous slippages on performance criteria.
A few months ago, Pakistan and the IMF had agreed to merge three instalments of $1.2 billion each into two tranches of $1.7 billion each but the releases could not be made when Pakistan did not introduce the value-added tax with effect from July 1, 2010, or complete the power sector reforms as committed to the IMF, the World Bank and the Asian Development Bank.
The SBA was meant to restore financial stability through a tightening of fiscal and monetary policies to bring down inflation and strengthen foreign currency reserves, protect the poor by strengthening the social safety net and raise budgetary revenues through comprehensive tax reforms (VAT) to enable significant increases in public investment and social spending required for achieving sustainable growth.