IMF Completes Last Review Under Pakistan's Stand-By Arrangement, Approves US$135 Million Disbursement

The Executive Board of the International Monetary Fund (IMF) today completed the third and last review under Pakistan's Stand-By Arrangement, which was approved in November 2000 to support the country's economic reforms through September 2001 (see Press Release No. 00/64).

The completion of the final review will enable Pakistan to draw SDR 105 million (about US$135 million). This will bring total disbursements under the IMF-supported program to SDR 465 million (about US$600 million). To complete the review, the Executive Board approved a waiver for the non-observance of a performance criterion under the arrangement required due to a six-week delay in promulgation of a new income tax law.

After the Executive Board's discussion of Pakistan's economic 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 commendable. Despite adverse weather conditions, real per capita GDP rose, inflation has been lower than expected, and external balances and official reserves have improved in line with program targets. The implementation of structural reforms has been broadly on track. While tax revenue collection was weaker than expected, the budget deficit was kept within the targeted level.

"To consolidate these achievements and build a solid foundation for sustainable high growth over the medium term, particularly in light of the heightened uncertainty following recent events, the authorities will need to pursue further macroeconomic adjustment and structural reforms. A first challenge will be to hold the course on the 2001/02 budget, despite continued weaknesses in tax revenue collection in recent months and a weaker-than-expected global environment. Recent measures to raise fuel taxation and reduce non-priority spending should help contain the fiscal deficit, while allowing for higher social and poverty-related spending. At the same time, the broadening of the tax base and a fundamental reform of tax administration are urgently needed.

"Another key challenge will be to further build foreign exchange reserves, which will require good coordination of monetary and exchange rate policies, while further liberalizing the foreign exchange interbank market to reduce the importance of the kerb market.

"Other reform priorities are to improve governance and transparency in the management of public resources, particularly in the context of the ongoing devolution of fiscal responsibilities to the newly elected local governments; the ongoing restructuring and privatization of public enterprises; and the strengthening of the financial system," Mr. Aninat said.