SBP chief leaves for Dubai for IMF talks

Saturday, 09 May 2009 11:11

ISLAMABAD: Pakistan's talks with the International Monetary Fund (IMF) on the 23-month Standby Arrangement have entered policy level with confidence of meeting almost all performance criteria and quantitative targets set by IMF. Policy level talks will be started by State Bank Governor Salem Raza as he reaches Dubai for monetary policy and exchange rate issues, sources said.

Advisor to Prime Minister on Finance Shaukat Tarin will reach Dubai directly from Washington day after for conclusion of talks, which are going on track, sources said. Pakistan's team is placing greater emphasis on getting some fiscal space from the Fund staff who would file a report for the IMF Board on the conclusion of the talks by May 11, in case all goes well. IMF Board would take its time to consider approval of the third tranche of $850 million.

Pakistan would also hold discussion on its request for upsizing its program by $4..1 billion from $7.6 billion Tarin has also raised this issue with IMF officials in Washington spring meeting, where he received encouraging response. He also met US Treasury officials to get support at the Fund Board, which have a strong leverage in such approval for countries laden with more political issues.

Pakistan has met almost all its actions by end-March for which the talks are meant. Fiscal deficit is already at 3.1 percent of the GDP, while the target was 3.2 percent. In tax collection, it is Rs 13 billion behind its target, which is covered through petroleum development levy. Though it leaves no room for extravagant spending on large government, growing defence needs and huge debt servicing.

Expenditures to save poor, like development, have already been sacrificed by the government for stability and other "untouchables" in the government allocations. Pakistan is also meeting its other targets like phasing out payments of oil purchase from open market rather than SBP forex reserves. It has also developed a plan for small banks and eliminating energy subsidies.

It is also on its way to frame a proper strategy and a time-bound action plan for adoption of specific measures to strengthen the social safety net and improve targeting to the poor, with the technical and financial assistance of the World Bank. Pakistan's balance of payments requirements are also easily being met through its available resources this year but by next year, in case of any upheaval, these issues can re-emerge.

The government has also prepared a plan for eliminating the inter-corporate circular debt by end-March, which has also been prepared and submitted to IMF. IMF is also assured that and update on transition to a single treasury account will be completed by end-June 2009. IMF has also been given assurance for structural performance criteria with the view to eliminating tariff differential subsidies by end-June 2009.

The Fund mission was also told by SBP Governor that his Bank's provision for foreign exchange for furnace oil had been eliminated by February 1. The government has also talked about amendments to the banking legislation, which will be submitted to Parliament to enhance the effectiveness of SBP enforcement powers in the area of banking supervision by end-June 2009.

Source: Business Recorder