The IMF has released the 4th tranche of $115 million against 3 year agreed loan of $1.31 billion under Poverty Reduction and Growth Facility (PRGF) programme initiated last year.



Nov 25 - Dec 01, 2002

The Executive Board of the IMF which considered the release in its meeting in Washington early this month approved it granting three waivers in end June 2002 perform once criteria. With this release the total disbursement under PRGF comes to $345 million. The board granted three waivers including non-observance of the quarterly Central Board of Revenue (CBR) revenue target for the period target for period ended June 30, 2002, the absence of bringing the Karachi Electric Supply Corporation to the point of sale by end-July 2002, and for granting new tax exemptions in the review period.

According to a press release issued by Islamabad Resident Mission of the IMF, Eduardo Aninat, Deputy Managing Director of the Fund commended further consolidating gains in macroeconomic stability and progress with structural reforms in a difficult economic and political environment. He said "Economic activity is picking up, inflation remains low, and strong private capital inflows and remittances have contributed to a strong building up of official reserves," IMF says that fiscal deficit for end-June 2002 was lower than programmed, even though tax revenue collected by the Central Board of Revenue (CBR) regrettably fell again short of target. Encouragingly, the pace of social sector spending is reported to have accelerated and is in line with the programme target for the year.

Aninat maintained that the reform package for 2002-2003 centered on further consolidation of macroeconomic stability and on structural reforms aimed at strengthening tax revenue, public expenditure management and governance in a wide range of areas, remains broadly on track. "Assuming an effective implementation, and in the absence of any major exogenous shocks real GDP is projected to grow by 4.5 per cent, which should help reduce the high poverty levels", he said.

The envisaged mix of cautious monetary and flexible exchange rate policies and continued fiscal consolidation should help keep inflation low and allow for a further reduction of the public debt burden. Preliminary data indicate that during the quarter ending September, exports and imports recovered strongly and that the CBR revenue target for the quarter was met.

IMF underscored the need of a continued fiscal effort to reduce public debt further while increasing funding for Pakistan's public social services. "This will require strong enforcement of tax collection, a determined reduction of the drain from loss making public enterprises on the budget and a better monitoring of social service delivery to ensure efficient use of available resources," emphasised Aninat.

IMF also warned that in view of the risks to the economic outlook, the authorities need to stand ready to undertake appropriate corrective fiscal measures, if needed, to achieve the budgetary targets. A senior IMF official said that regional security and geo-political situation, both in the context of Indo-Pak tensions on the eastern borders and Afghan situation on the west and fears of a global economic slow down, such caution and preparedness was necessary.

"The focus of the reforms needs to be on reducing leakage, fraud and administrative costs and better enforcing bill collections as set out in each utility's financial improvement plan". It was a very significant policy statement of the Fund as there was no reference of utility tariff increase instead it shifted all the reform responsibility on the power management, stressing greater accountability and good governance. IMF also observed that the privatization of KESC and of certain components of WAPDA would be critical to achieve the targeted efficiency gains.

The Board meeting, however, noted with satisfaction that Pakistan as a result of financial and structural reforms, has achieved macro-economic stability, which would lead to higher economic growth and attract direct foreign investment reducing poverty. He said that due to lower GDP growth during last few years, alleviation of poverty was also minuscule than expected. The external shocks of Afghanistan and Indian hostility coupled with internal drought pushed the growth further, eventually having little effect on poverty reduction. The Board also commended Pakistan's poverty reduction and growth facility programme as higher allocations in the Public Sector Development Programme (PSDP) allocations for this purpose would generate economic activity, achieve higher growth targets, increase spending in social sector especially health, education and human resources development for creation of more jobs to help reduce poverty.

The Poverty Reduction and Growth Facility (PRGF) is the IMF's consessional facility for low-income countries, PRGF-supported programmes are based on country-owned poverty reduction strategies adopted in a participatory process involving civil society and development partners, and articulated in a Poverty Reduction Strategy Paper (PRSP). This is intended to ensure that each PRGF-supported programme is consistent with a comprehensive framework for macroeconomic, structural and social policies, to foster growth and reduce poverty. PRGF loans carry an annual interest rate of 0.5 per cent and are repayable over 10 years with a 51/2 year grace period on principal payments.