Press Release: IMF Executive Board Approves US$451 Million Disbursement in Emergency Natural Disaster Assistance for Pakistan
September 15, 2010Press Release No. 10/344
September 15, 2010
The Executive Board of the International Monetary Fund (IMF) today approved a disbursement of an amount equivalent to SDR 296.98 million (about US$451 million) under the Emergency Natural Disaster Assistance (ENDA) for Pakistan to help the country manage the immediate aftermath of the massive and devastating floods that have hit the country. The Board’s approval enables the immediate disbursement of the full amount of this emergency assistance; with the hope that this disbursement will catalyze and speed an adequate level of disbursements by other members of the international community.
Pakistan’s economic outlook has deteriorated sharply as a result of the floods. The agriculture sector, which accounts for 21 percent of Gross Domestic Product (GDP) and 45 percent of employment, has been hit particularly hard. Initial and preliminary assessments suggest that real GDP growth is unlikely to exceed 2¾ percent in 2010/11, mainly because of sharply lower agricultural output. Owing to the disruptions in economic activity, pressure on the country’s budget is expected as well as a weakening of the balance of payments position. An updated estimate on the economic impact of the floods should be available after the completion of damage and needs assessment in the fall.
The US$451 million in emergency assistance will be directed to the country’s budget. It will help finance the additional spending to help the population affected by the floods and the associated immediate foreign exchange needs, thereby mitigating a decline in external reserves and supporting confidence in Pakistan’s external position.
The ENDA, which provides rapid and flexible financial assistance for countries affected by natural disasters with an urgent balance of payments need, is not linked to any program-based conditionality or review. Pakistan’s financing under the ENDA carries the IMF’s basic rate of charge, has a three-year and three month grace period, and is repaid in eight equal installments with a final maturity of 5 years.
Following the Executive Board’s discussion on the Pakistan, Mr. Naoyuki Shinohara, Deputy Managing Director and Acting Chair, stated:
“The IMF extends its deep sympathy to the people of Pakistan for the loss of life, human suffering, and extensive damage to property and infrastructure caused by catastrophic floods since late July. The adverse impact of the floods has resulted in significant fiscal and balance of payments needs related to relief operations.
“The authorities’ immediate response to provide relief to victims and mobilize humanitarian aid is commendable. The Fund’s emergency assistance to Pakistan will help finance needed imports and is expected to catalyze additional external support—preferably in the form of grants or highly concessional financing—which is critical to help meet the immediate budgetary and balance of payments needs and avoid excessive recourse to domestic financing. The authorities will work with the World Bank on an enhanced monitoring of aid flows to help target assistance to the poor and vulnerable and bolster transparency and accountability.
“The authorities’ commitment to move ahead with the introduction of a reformed general sales tax, aimed at broadening the tax base, and a strategy for reforming the electricity sector will be important in addressing the budgetary situation and help facilitate the completion of the fifth review under the Stand-By Arrangement.”