The International Monetary Fund (IMF) has approved an additional $3.2 billion loan to Pakistan to fund priority spending and help Islamabad provide assistance to nearly three million people displaced by military operations and a difficult security situation.
About $1.4 billion of the new IMF resources will be made available, on a temporary basis, for budget financing during 2009-10, IMF officials said.
The main purpose of the new loan is to provide bridge financing until donor support pledged at an April donors conference in Tokyo starts to come in, the IMF said. Donors had pledged $5.7 billion to Pakistan over three years.
The IMF Executive Board in its meeting approved Pakistan's request for a waiver for the non-observance of two end-June 2009 structural performance criteria.
It also approved Pakistan's request for a waiver for non-observance for the end-June quantitative performance criterion on the fiscal deficit, which according to preliminary information was missed by an amount equivalent to 0.9 per cent of GDP.
Noting that Pakistan's economy has continued to stabilise, Deputy Managing Director and Acting Chair Murilo Portugal said "reforms in the financial sector and the foreign exchange market have been progressing, and steps have been taken to strengthen the social safety net."These achievements were appreciable, considering the security developments that resulted among others in the large number of internally displaced persons (IDPs), the global economic recession, and the difficult domestic political environment," he said.
Portugal said the unresolved energy sector problems have continued to undermine Pakistan's growth potential and burden public finances.
"The recent agreement with World Bank and Asian Development Bank staffs on the electricity sector reform signals a desire to address the deep-seated problems in that sector, including the resolution of the intercorporate circular debt, which burdens the energy sector enterprises, and the elimination of tariff differential subsidies within a year from now, making additional fiscal resources available for priority spending," the Deputy Managing Director said.
Noting that the macroeconomic outlook for 2009-10 remains difficult, and the external position is subject to considerable downside risks, he said: "The donor support pledged in Tokyo and the augmentation of access under the IMF-supported Stand-By Arrangement by about $3.1 billion will help mitigate these risks and enable the implementation of the government's fiscal program; however, this financing is temporary and should be used as a bridge until the revenue reforms bear fruit."
