Wednesday, December 1, 2010

IMF likely to delay next Pakistan loan tranche-source

IMF likely to delay next Pakistan loan tranche-source
KARACHI: Pakistan’s slow implementation of key reforms may again delay the release of the sixth tranche of an $11 billion International Monetary Fund loan, a source involved with the IMF talks said on Wednesday.

An IMF mission came to Pakistan last month to review the country’s performance and was due to present the country’s case to its board in mid-December. Pakistan was hoping to secure the sixth tranche then.
The seven-tranche programme has kept Pakistan’s economy afloat since it was agreed in November 2008. The sixth tranche had originally been scheduled for release in August.
It is unlikely the case will be presented on Dec.17 as there are still things in the process which won’t be finalised until then,” said the source.

One of them is implementation of a reformed general sales tax (RGST), a key condition for the release of the sixth tranche.Political and economic stability in Pakistan is a priority for the United States, which regards it as a vital ally in its war on militancy.

The IMF and other donors require Pakistan to broaden its tax to GDP ratio, which at about 10 per cent is one of the lowest in the world.

To do that it would have to implement fiscal reforms such as eliminating electricity tariffs and introducing the RGST, which could deepen public frustrations with an unpopular government.
The government introduced a bill in the National Assembly last month on the RGST, which had been scheduled for implementation on July 1. Some political parties object to it, saying it would fuel inflation.  However, analysts expect it to pass because the country needs IMF funding to secure additional external assistance especially after the devastating summer floods that cost $9.7 billion in damages.

The Pakistani government announced revised economic targets at an international conference on Nov. 16, hoping to reassure donors and secure more aid to rebuild following the floods.
Pakistan aims to limit its fiscal deficit target to 4.7 percent of GDP, or 812 billion rupees ($9.51 billion), under an agreement with the International Monetary Fund for the fiscal year 2010/11.
Inflation is forecast at 15 percent, and the economy is expected by the government to grow 2.5 percent for the fiscal year ending June 30.

The US State Department’s aid coordinator for economic and development assistance to Pakistan, Ambassador Robin  Raphel, said on Monday that Pakistan must take steps to  broaden its tax net and raise revenue urgently and should live  up to its IMF agreement.
Pakistan is likely to seek an extension of the IMF programme as it is scheduled to end this year. However the source said no formal request had been sent.
In May, Pakistan received $1.13 billion, the fifth tranche of the programme.

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