Pakistan and the IMF
Free Email Notification
The Executive Board of the International Monetary Fund (IMF) today approved a Stand-By credit for Pakistan until end-September 2001 in an amount equivalent to SDR 465 million (about US$596 million) to support the government's economic program for 2000-01. The decision will enable Pakistan to draw SDR 150 million (about US$192 million) immediately.
"The Pakistan authorities have put in place an economic adjustment and reform program, for which financial support under a Stand-By Arrangement has been approved by the Fund's Executive Board. The program aims to move Pakistan on to a high and sustainable growth path by strengthening the balance of payments position, rebuilding official reserves, and reducing public sector indebtedness. To support these objectives, the government has strengthened macroeconomic policies and has developed a wide-ranging structural reform agenda that emphasizes revenue mobilization, improving investor confidence, poverty alleviation, and good governance. The reform agenda has been drawn from a broad consultative process. Substantial improvement in the collection and quality of data and transparency is an integral part of the program.
"The program envisages a reduction in the overall budget deficit in 2000/01 to 5.2 percent of GDP, from 6.4 percent in 1999/2000, with further consolidation over the medium term. The budget target is to be achieved through increased tax collections with a widening of the tax base, improved tax administration, and strict expenditure controls. Since there is significant uncertainty surrounding the short-term impact of revenue measures on the budgetary position, the authorities should stand ready to take additional measures if revenues fall short of expectations. Steps have also been taken to increase spending by close to one-third on poverty reducing programs and to curtail less productive spending. Looking forward, continued improvement in revenue performance will be crucial for reducing the public debt burden and allowing more resources for tackling poverty on a lasting basis.
"A key element of the program is the maintenance of a competitive and flexible exchange rate that is determined by market forces. The transition to the flexible exchange rate regime has been facilitated by an increase in short-term interest rates to quell speculative pressures on the rupee. Once these pressures subside and the reserve position improves, there should be scope for a reduction in interest rates.
"Continued progress with structural reform will be necessary for attracting private investment, achieving high growth, and alleviating poverty. On the fiscal side, broadening the tax base, strengthening tax administration, and reforming the civil service will be of particular importance. In addition, steps to integrate financial markets, improve the financial position of public enterprises and banks, liberalize international trade, accelerate privatization, and enhance governance will be critical.
"The financing of the program will involve participation of the international financial institutions, official bilateral creditors, and the private sector. The Asian Development Bank and the World Bank will consider adjustment loans in support of Pakistan's structural reform efforts. A meeting of the Paris Club is expected in January 2001 to consider a request by Pakistan for a rescheduling of both its accumulated arrears and its debt service payments to Paris Club creditors falling due during the program period on pre-cutoff debt. The Pakistan authorities intend to seek comparable treatment from all other official bilateral and private creditors.
"The successful implementation of the program and the finalization of major structural reform plans, together with key initial steps, could pave the way over time for medium-term financial support from the Fund under the Poverty Reduction and Growth Facility," Mr. Köhler said.
Macroeconomic Policies Under the Program
The program targets a substantial increase in gross official reserves to US$1.74 billion at end-June 2001, equivalent to 7.3 weeks of imports of goods and nonfactor services, that is to be achieved through a flexible exchange rate policy, monetary tightening, fiscal adjustment, and substantial exceptional financing. Improvements in the balance of payments position will also be helped by increased exports and sharply reduced private sector capital outflows brought about by a rebound in investor confidence.
In addition to the IMF's stand-by credit, Pakistan's reform program will be supported by financing from the Asian Development Bank, the World Bank, bilateral official creditors, and the private sector. The Paris Club has agreed to consider, in January 2001, rescheduling Pakistan's outstanding arrears and upcoming debt obligations to Paris Club creditors.
Pakistan joined the IMF on July 11, 1950, and its quota1 is SDR 1,033.7 million (about US$1,323 million). Its outstanding use of IMF financing currently totals about SDR 1,077 million (about US$1,379 million).
1 A member's quota in the IMF determines, in particular, the amount of its subscription, its voting weight, its access to IMF financing, and its allocation of SDRs.
IMF EXTERNAL RELATIONS DEPARTMENT