Thursday, December 16, 2010

Pakistan likely to get extension in $11bn IMF stand-by arrangement

ISLAMABAD: Pakistan’s economic managers are confident of gaining a three-month extension in the $11.3 billion stand-by arrangement from the International Monetary Fund (IMF). In this regard, the country is likely to submit its formal request to the IMF Secretariat in Washington on December 22 or 23, official sources said on Thursday.

An inbuilt provision for a three-month extension is available in the IMF’s loan programme. Pakistan has itself opted not to place its request before the IMF Executive Board that is scheduled to meet today (Friday) in Washington due to non-observance of five major performance benchmarks. It has been decided that Pakistan’s director in the IMF would submit the request to the IMF Secretariat to avoid the expected criticism from executive directors of major donor countries, official sources added.

According to the official sources, the economic managers have already obtained a formal approval from the political leadership of the country for submission of the extension request.

The economic managers are confident of getting the extension from the IMF authorities and all key performance benchmarks would be achieved during the extended period until March 2011, the sources explained.

The Pakistan government has not been able to meet the five performance benchmarks including non-approval and enforcement of the RGST on goods and services by the federal and provincial governments, operationalising of Single Treasury Account at the federal level, keeping the State Bank of Pakistan borrowing at Rs 0 at the end of each quarter of the ongoing fiscal year, formal approval and conversion into act of the State Bank of Pakistan Act 2010, and enforcement of the power tariff rationalisation plan seeking an increase in the power tariff by two to three percent by the end of each month to eliminate all power subsidies by June 30, 2011.

Reasons: The three-month extension request from Pakistan would also contain the reasons for delay in the implementation of the performance benchmarks, including political opposition against tax reforms, and the way forward for achieving the desired goals would include contacts with major political parties for their support on structural reforms to rescue the country from chronic economic illness, the sources said.

Pakistan may request for Extension: IMF SBA expires on December 31
The government may request the International Monetary Fund (IMF) Executive Board meeting today (Friday) for extension of $11.3 billion stand-by-arrangement (SBA) programme officially expiring on December 31, it is reliably learnt. Sources said the IMF programme is almost suspended from May 2010 due to Pakistan's failure to comply with performance criteria agreed with the fund.

They said that Pakistan will avail in-built facility of three months extension in the SBA programme to comply with the performance criteria for implementation of RGST to qualify for the remaining two instalments and to remain in the programme. As now the programme is expiring on December 31 and economic managers have not been able to comply with critical condition of Reformed General Sales Tax (RGST), sources said that the request would be made for extension. This would be the last meeting of the IMF board in current
Sources said the economic team informed the Prime Minister during recent meeting on economic situation of the country about the possible economic crisis the country may face in case the IMF did not release remaining two instalments because of non-compliance of performance criteria of RGST implementation. The economic situation is very grim and remaining two instalments are very critical for the country, said an official on condition of anonymity.

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