News Brief: IMF Completes Second Review Under Pakistan's Stand-By Arrangement

July 11, 2001

The Executive Board of the International Monetary Fund (IMF) today completed the second review under Pakistan's Stand-By Arrangement. As a result, Pakistan will be able to draw a further SDR 105 million (about US$131 million). Pakistan has so far drawn SDR 255 million (about US$324.6 million) under the Stand-By, which was first approved on November 29, 2000 (see Press Release No. 00/64).

The Executive Board also approved waivers for performance criteria on tax revenue collection and the elimination of interest subsidy element of the export finance scheme under the Arrangement.

Following the Board's discussion of Pakistan's program, Eduardo Aninat, Deputy Managing Director and Acting Chairman, issued the following statement:

"Pakistan's achievements under the program supported by the Stand-By Arrangement have been encouraging. The authorities have made a determined effort to implement the program, and most of the program targets have been achieved. Inflation has been better than expected, and the budget deficit remains in line with program assumptions. Economic activity was somewhat lower than expected because of severe drought, and this has contributed to lower-than-expected tax revenues and a weaker external balance. The implementation of important structural reforms has been well on track.

"To consolidate these achievements and build a solid foundation for sustainable high growth over the medium term, the authorities will need to pursue further macroeconomic adjustment and structural reform. The key challenge will be to implement the recently announced 2001/02 budget. The budget includes a package of direct and indirect tax reforms that will broaden the tax base, reduce distortions, strengthen incentives for investment, and reduce governance problems inherent to the current system. Together with planned improvements of tax administration, these reforms will help to boost collections, a key precondition for containing the fiscal deficit while increasing social and development spending.

"Another key challenge will be to achieve the targets for foreign exchange reserves, which will require good coordination of monetary and exchange rate policies and further progress toward a genuinely market-based exchange rate policy.

"Other reform priorities are to further improve governance in the management of public resources and the ongoing restructuring of public enterprises, and to strengthen the soundness of the financial system", Aninat said.


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