According to the media reports, the executive board of the International Monetary Fund has approved the second last tranche of the $6.2 billion extended fund facility loan programme for Pakistan. Fortunately or unfortunately, the new government in Islamabad had to sign a deal with the donor agency in September 2013 to repay the earlier loans, meet the international obligations and alleviate the economic woes. The IMF has reportedly relaxed a condition, allowing the State Bank of Pakistan to temporarily borrow from commercial banks to meet the financing needs of the China-Pakistan Economic Corridor project. Therefore, the approval of the tenth review for the period of October-December 2015 clears the way for disbursement of an amount equivalent to $502 million to the country. On the approval of the loan, Finance Minister Ishaq Dar hopes that Pakistan will be able to go through two more reviews to complete the programme.
Reports suggest that the donor agency wants Islamabad to meet all quantitative performance criteria for the second quarter of the current fiscal year. The government was able to increase the foreign exchange reserves and meet the budget deficit target of Rs 625 billion during the first half of the financial year. The donor agency monitors the progress with regard to compliance of its conditionalities, covering quantitative performance criteria, indicative targets and numerous structural benchmarks. However, it has approved the government’s request to modify quantitative performance criteria on the State Bank’s stocks for net foreign currency swaps and forward positions for the third quarter. The reports also suggest thatfor the current fiscal year, the agency has set a ceiling for net foreign currency swaps and forward positions at $1.65 billion. The step will create more room for the central bank to manage foreign currency and domestic liquidity. Experts say that the bank can temporarily borrow from local banks in dollar terms to meet certain obligations under the swap arrangement. The additional space also allows the bank to meetcertain requirements relating to the economic corridor project.
The fund has projected the budget deficit ceiling at 3.5 percent of the gross domestic product for the next fiscal year. However, the general elections are ahead and it will be difficult for the government to cut expenditures but will have to go on a spending splurge to spur growth. Meanwhile, an IMF official has dispelled the impression that Pakistan is on the brink of bankruptcy. According to him, the exports have declined, but low oil prices and strong remittances will stabilize the country’s economy in the current situation.
