Re: Pakistan wins China investment worth $42 billion
IMF team recommends release of $1.1bn
Mubarak Zeb Khan
Updated about 15 hours ago
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ISLAMABAD: The International Monetary Fund mission gave the go-ahead on Saturday to the release of the fifth tranche of $1.1 billion to Pakistan, possibly before Dec 15.
Although Islamabad has missed three performance evaluations, the IMF’s executive board will consider in December whether to release the funds.
The go-ahead was given after 11 days of discussions on the successful completion of the fourth and fifth reviews of Pakistan’s $6.6bn three years Extended Fund Facility (EFF), approved by the IMF’s executive board on Sept 4 last year.
The finance ministry claimed in a statement that the completion of the reviews was indicative of the government’s commitment to implementing structural reforms in taxation, energy, monetary and financial sectors as well as public sector enterprises.
The IMF’s staff mission, led by Jeffery Franks, met Finance Minister Ishaq Dar, State Bank Governor Ashraf Wathra, and other senior officials in Dubai.
The officials from the World Bank and Asian Development Bank were allowed for the first time to be part of the meeting, instead of observers.
A source told Dawn that Pakistani authorities assured the IMF that structural reforms and privatisation programme would continue as per the agreed plan.
The IMF mission announced on Saturday that it had reached staff-level understandings with the authorities on a memorandum of economic and financial policies which, upon management’s approval, will be considered by the IMF Executive Board next month to conclude the fourth and fifth reviews.
Upon board approval, about $1.1bn will be made available to Pakistan, added an IMF announcement.
However, the IMF identified three performance criteria targets which were missed by Islamabad: the target on net domestic assets of the SBP (end-June and end-September) and on government borrowing from the central bank (end-June and end-September), as well as net national reserves (end-September).
It appears that for the first time the country’s tax department is on the agreed timeline of the IMF.
Federal Board of Revenue Chairman Tariq Bajwa, who was part of the meeting, told Dawn on telephone that revenue collection and other commitments had already been met in the first quarter of the current financial year. “We are on track as per IMF commitment,” he added.
Finance Minister Ishaq Dar told a joint press conference with the IMF in Dubai that the PML-N government remained on track on economic development despite challenges.
Mr Jeffery Franks said in a statement that the mission held “productive discussions” with Pakistani officials on the country’s economic performance under the EFF programme and “is encouraged by the overall progress in strengthening macro-economic stability and output growth”.
Mr Franks said the mission was encouraged by the strong fiscal performance achieved during 2013-14 and by the authorities’ determination to further lower the deficit to 4.7 per cent of GDP in the current fiscal year. “The mission reaffirms the IMF’s support to the government’s efforts to implement their economic reform efforts in improving the business climate,” he said.
Mr Dar gave a presentation to the IMF team about economic performance in the first year of the PML-N government. He said Pakistan’s overall balance of payments position had remained broadly in line with expectations.
**REMITTANCES: **He said high growth in workers’ remittances (up 19.52pc in the first quarter of FY 2014-15 as compared with same period last year) continued to help contain the current account deficit in the balance of payments. Combined foreign exchange reserves of the SBP and scheduled banks closed at $13.339bn on Nov 5.
With current trends, he said, it was expected that the annual average CPI inflation target of 8pc for 2014-15 would be achieved.
In the budget 2014-15, the stipend paid to the poorest families has been increased from Rs 3,600 to Rs4,500 per family per quarter. “The coverage will also be increased to 5.3 million families by June 30,” Mr Dar said.
The IMF team was informed that Pakistan would promote policies for private investment for power generation through both the entry of new players and expanding existing capacity of the IPPs, systematically adhering to energy mix targets and least-cost generation plans. The expansions are expected to generate additional 2,000 MW by 2016.
Mr Franks said the rapid build-up of gross reserves which rose from $5.4bn at the end of March to $9.1bn by the end of June stalled thereafter due to delays in divestment and Sukuk transactions and the effects of political uncertainty on capital flows. However, going forward reserves were expected to surpass three months of imports by the end of the current financial year.
“Despite some difficulties, the authorities’ reform programme remains broadly on track, with the government and SBP meeting most quantitative performance criteria for end of June and September. The authorities are committed to taking the necessary corrective actions for missed targets, and with these actions, they will be on-track to meet their objectives for end-December,” he said.
The mission said continued efforts were needed to improve the tax-to-GDP ratio and create resources to finance much-needed spending on investment and social development, while making the taxation system more efficient, transparent and equitable.
The mission urged the authorities to deepen their structural reform agenda in order to improve Pakistan’s competitiveness in global markets.
Reuters adds: Pakistan plans to issue a US dollar-denominated Islamic bond worth $500m this month and hopes to obtain $1.1bn from the IMF soon, Mr Dar said.
After a successful Eurobond issue in April, Pakistan said it planned an international sovereign Sukuk issue, and in early September it revealed it had selected four banks — Citigroup, Deutsche Bank, Dubai Islamic Bank and Standard Chartered — as book-runners.
“Hopefully in the last week of this month the Sukuk, God willing, will be available to the industry, Islamic banking institutions,” the finance minister said.
“The indicative size for a sovereign bond, we have $500m. We will see…what is the book building…but we had a very good response when we issued the sovereign conventional paper,” he said without giving further details.
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Published in Dawn, November 9th, 2014*
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