IMF Survey: Pakistan Gets $7.6 Billion Loan from IMF

IMF News, November 24, 2008

Source details

The IMF's Executive Board approved a $7.6 billion loan for Pakistan to support a stabilization and rebuilding program while expanding the social safety net to protect the poor.
Of the $7.6 billion loan, $3.1 billion will be made available by the IMF immediately to strengthen Pakistan's reserves.
The loan is a 23-month Stand-By arrangement intended to underpin fiscal and monetary tightening to reduce inflation and the external current account deficit.

Primary objectives:
- Restore overall economic stability and confidence through tightening of macroeconomic policies.
- Ensure social stability and adequate support for the poor during the adjustment process.
Key measures envisaged for the coming 24 months:
- Fiscal consolidation:
- Fiscal deficit, excluding grants, will be brought down from 7.4 percent of GDP in 2007/08 (starting July 1) to 4.2 percent in 2008/09 and 3.3 percent in 2009/10.
- Adjustment will be achieved primarily by phasing out energy subsidies and strengthening revenue mobilization through tax policy and administration measures.
- Reduction in expenditures will create room to increase spending on the social safety net.
- Monetary policy and reserves:
- The State Bank of Pakistan (SBP) will act to build international reserves, bring down inflation to 6 percent in 2010, and eliminate central bank financing of the government.
- The program includes measures to improve monetary management, enhance SBP's bank resolution capacity, and avoid use of public resources to support the stock market.
- Social protection:
- Increase expenditure on the social safety net via cash transfers and targeted electricity subsidies.
- The fiscal program for 2008/09 envisages an increase in spending on the social safety net of 0.6 percentage points of GDP to 0.9 percent of GDP.
- Pakistan will work with the World Bank to prepare a more comprehensive and better targeted social safety net program.

Immediate financing:
- $3.1 billion of the $7.6 billion will be available immediately to bolster reserves.
Monitoring and ownership:
- The program and its conditionality are based on targets and measures set by the Pakistani authorities for the next two years; IMF monitoring will assess progress and allow adjustments if circumstances change.
Donor mobilization:
- There is an urgent need to mobilize additional donor support to strengthen resilience, finance the expanded social safety net, and allow higher spending on development programs.
- The Fund stands ready to participate in donor meetings to provide economic and financial analysis to underpin expanded support.
IMF capacity:
- The IMF has more than $200 billion in lendable resources and is ready to process loan proposals quickly through its Emergency Financing Mechanism.

Identified risks to program success:
- Security and implementation uncertainties.
- A more severe-than-anticipated slowdown in economic activity in trading partners.
- Lower-than-expected private capital inflows.
Implementation message:
- "Sustained and forceful implementation will be key to the success of the program," said Juan Carlos Di Tata.

Pakistan context:
- Population cited as 170 million people.
Previous macroeconomic performance:
- From 2000/01-2004/05, when Pakistan implemented two IMF-supported programs, real GDP growth averaged 5 percent a year with relative price stability.
- Macroeconomic situation deteriorated significantly in 2007/08 and the first four months of 2008/09 due to adverse security developments, large exogenous price shocks (oil and food), and the global financial turmoil.
Recent policy steps taken by authorities:
- Energy subsidies have been cut.
- Interest rates have been increased to tighten monetary policy.

IMF Survey: Pakistan Gets $7.6 Billion Loan from IMF