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1- PIAC: CONSOLIDATION AND GROWTH
2- MARGIN TRADING RULES 2004
3- PIA: THE OUTLOOK
4- LAST TRANCHE OF IMF

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LAST TRANCHE OF IMF

 

Far-reaching reforms have also resulted in a more efficient and competitive financial system

 

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From SHAMIM AHMED RIZVI,
 Islamabad 

July 05 - 11, 2004
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The Executive Board of the International Monetary Fund (IMF) has approved the eight tranche of its Poverty Reduction and Growth Facility (PRGF) for Pakistan. The tranche which has a size of $ 252.60 million would be last release of 3 year PRGF programme of $ 1.5 billion approved on December, 2001.

It is indeed gratifying to note that Pakistan once doubled, as a single tranche country has sustained a satisfactory relationship with IMF and qualified for all tranches. Pakistan has already declined to extend the programme as it carried conditions and slightly a higher rate of interest. Pakistan is now interested only in soft foreign loans for development purpose.

Approving the release of last installment on completion of its review of Pakistan's economy, the IMF Board, in their press release, observed "the Executive board of the IMF recently completed the eight review of Pakistan's performance under a three-year, SDR 1.034 billion (about US$ 1.52 billion) PRGF arrangement. Completion of the review enables the release of a further SDR 172.28 million (about US$ 252.60 million) under the arrangement. In completing the review, the Executive Board also approved Pakistan's request for waivers for the non-observance of certain structural performance criteria and for the modification of one of the end-June 2004 quantitative performance criteria.

Following the Executive Board's discussion of Pakistan's economic performance, Agustin Carstens, Deputy Managing Director and Acting Chairperson, stated "Pakistan has come a long way in a short period of time in the context of the three-year arrangement under the PRGF, and there was strong macroeconomic performance during the first nine months of 2003/04. GDP growth accelerated further, inflation remained within target, and significant surpluses in the external balance were achieved. In addition, the fiscal deficit was lower than expected, and tax collections were slightly higher than projected. Poverty-related expenditures grew by 28 percent over the same period in the previous fiscal year." Structural reforms were further advanced. Financial and tax administration reforms were implemented broadly as envisaged, and energy prices and tariffs were adjusted in line with international prices.

He further observed that far-reaching reforms have also resulted in a more efficient and competitive financial system. In particular, the predominantly state-owned banking system has been transformed into one and that is predominantly under the control of the private sector. The legislative framework, and the State Bank of Pakistan's supervisory capacity have been improved substantially. As a result, the financial sector is sounder and exhibits an increased resilience to shocks. Looking ahead, it will be important to continue to restructure the banking system, and to implement the recommendations of the recent assessment of the financial sector under the FSAP.

 

 

The acting MD of IMF commented, the macroeconomic policy framework for 2004/05 is broadly appropriate. Fiscal policy aims to further increase poverty-related expenditures while reducing the public debt burden. Accordingly, the 2004/05 budget envisages a consolidated fiscal deficit of 4.0 percent of GDP and an increase in poverty-related expenditures. Monetary policy will continue to be geared toward reining in inflationary pressures, and the exchange rate will continue to be managed flexibly "Continued prudent debt management remains a key priority. The early repayment of some relatively expensive external debt is commendable, as well as Pakistan's successful return to international capital markets in early 2004.

He advised that in order to maintain or accelerate the current growth momentum and make continued progress on poverty reduction, the authorities need to steadfastly pursue their reform agenda to further improve the environment for private sector investment, along the lines envisaged in Pakistan's Poverty Reduction Strategy Paper. It will be essential to press ahead with the ongoing reforms to simplify the tax system and broaden the tax base. In the energy sector, measures should be implemented to contain demands on the budget while improving service delivery and putting power utilities on a sound financial footing over the medium term. This will require close collaboration with the World Bank, Mr. Carstens said the IMF, taking advantage of the occasion, also chose to offer some advice. In order to maintain or accelerate the current growth momentum and make progress on poverty reduction, authorities of the country would need to steadfastly pursue their reform agenda to improve the environment for private sector investment. It would also be essential to press ahead with the on-going reforms to simplify the tax system and broaden the tax base. In the energy sector, measures should be implemented to contain demands on the budget while improving service delivery and putting power utilities on a sound financial footing over the medium term.

The approval of the PRGF's latest tranche amounting to more than $ 250 million is definitely a positive development. It is a confirmation once again from an independent source that the economy of the country is progressing steadily on the right party. Of course, there have been a few lapses but those who have been criticizing the major thrust of policies have been proven wrong or were not aware of the resource constraint depending upon the policies and the adverse consequences of past mismanagement which the present dispensation had to inherit. After consolidation of reforms and strengthening of the macro-economic indicators, the stage is now clearly set to pass on these gains to the micro level, paving the way for poverty alleviation and improvement in social indicators. If the country had not pursued the reform agenda in close collaboration with the IMF over the last two years and a half, such a scenario probably could not have been imagined. The present IMF approval is a vote of confidence in the country's economic performance and policies which would be helpful in improving our credit rating in the international market and encourage investment and job creation. However, the authorities are still required to earnestly try to meet the specified criteria for which waivers were sought and granted. Agreed conditionalities must be honoured and implemented to earn further credibility.