IMF approves $1.3 billion loan to Pakistan

WASHINGTON: The International Monetary Fund ( IMF) on Friday approved immediate disbursement of $1.3 billion of financial assistance to Pakistan, as it noted that the country's vulnerability remains high.

A decision in this regard was taken by the IMF Executive Board following the completion of fourth review of Pakistan's economic performance under a programme supported by a Stand-By Arrangement (SBA).

With this, the total disbursement to Pakistan so far has been $7.27 billion.

The IMF Board also approved rephasing three remaining disbursements into two while keeping the total access under the arrangement unchanged, a media statement said.

Pakistan's request for the waiver of two end-March 2010 quantitative performance criteria stipulated by the IMF for disbursement of the loan has also been approved.

It has also agreed to a request for modification of the end-June 2010 performance criteria for the budget deficit to increase the cumulative end-quarter ceilings by 0.15 per cent of gross domestic product (GDP) to allow space for urgent security outlays and avoid undue cuts in other priority spending, and to raise the floor for the net foreign assets of the SBP by $300 million given a strengthened external position.

Against a background of adverse security developments and a rapidly changing political environment, Pakistan's economic conditions have improved, deputy managing director and Acting Chair Murilo Portugal said.

Real GDP growth has begun to pick up and the external position has strengthened.

Preparations for important and politically difficult tax reforms have moved forward, and there has been steady progress in financial sector reform, he said.

"Nevertheless, Pakistan's vulnerabilities remain high, due to persistent inflation, security-related spending pressures, energy-sector problems, and shortfalls in revenue collection and external financing," Portugal said.

The IMF official said authorities reaffirmed their commitment to proceed with legal and administrative steps to ensure that VAT is introduced on July 1 as scheduled, providing the needed tax revenue for investments in human resources, infrastructure and poverty reduction.

"Its success depends crucially on prompt passage of consistent VAT laws by parliament and provincial assemblies, harmonisation of other tax laws, and an effective refund system," he said.