Text of Request for an Extension of the Stand-By Arrangement and its approval by IMF. Take a look Citizens. No matter who occupies the Prime Minister House, will have to fulfill IMF requirements and agreed to be delivered by the incumbent government in next nine months, via the Finance Minister and Governor of State Bank of Pakistan. Meanwhile, we will be at the mercy of OGRA and pay the abot ten percent hike in energy prices. The resultant monstrous inflation and price hikes is going to break our backs or whatever is left of it.
” PAKISTAN Request for an Extension of the Stand-By Arrangement Prepared by Middle East and Central Asia Department (In consultation with other departments)
Approved by Alfred Kammer and James Roaf
December 27, 2010
1. In the attached letter, the Pakistani authorities request a nine-month extension of the Stand-by Arrangement (SBA) through September 30, 2011. They believe that a nine-month extension is necessary to implement the policy measures needed to complete the two reviews remaining under the program and enable two purchases of approximately SDR 1.15 billion each (Table 1).
2. On November 24, 2008, the Executive Board approved a 23-month SBA in an amount equivalent to SDR 5,169 million (500 percent of quota). On August 7, 2009, the arrangement was augmented to SDR 7,235.9 million (700 percent of quota) and extended through December 30, 2010. Following the completion of the fourth review on May 14, 2010, purchases under the arrangement reached SDR 4,936.04 million. Separately, to help the authorities cope with the catastrophic floods that affected Pakistan this summer, the Executive Board approved on September 15, 2010 the disbursement of SDR 296.98 million (28.73 percent of quota) under the policy on emergency assistance for natural disasters.
3. The fifth review, originally scheduled to take place before end-September 2010, has been delayed. The structural benchmark on implementing a value added tax on July 1, 2010 and the end-June 2010 performance criteria on general budget deficit and government borrowing from the central bank were missed. Subsequently, the economic conditions deteriorated markedly as a result of the floods, requiring significant amendments to the 2010/11 budget. Corrective actions needed to complete the fifth review could thus not be implemented before the expiry of the SBA.
4. Discussions between the authorities and the Fund staff on the ways and prior actions to complete the fifth review are ongoing. Among the main issues, the change of tax reform from the implementation of a value added tax to a reform of the existing general sales tax (GST) has required significant modifications to the proposed legislative framework and renewed consultations with provincial governments, the private sector, and other stakeholders. Draft legislation to reform the GST on goods (the federal part) was introduced in the National Assembly in November 2010 and is to be complemented by the legislation to cover GST on services (the provincial part). The authorities and staff are discussing the measures needed to achieve the authorities’ revised 2010/11 budget deficit target of 4.7 percent of GDP, while accommodating flood-related assistance. These discussions also cover energy sector reform, which is needed to increase electricity output, curtail the interenterprise debt of the electricity sector (circular debt) and contain untargeted electricity subsidies.
5. A nine-month extension will provide the authorities with time for completing the GST reform, implementing a set of measures to correct the course of fiscal policy, and amending the legislative framework for the financial sector. It would also allow time to establish a track record of performance. Full implementation of a reformed GST involving a broader base, reduced exemptions, and input crediting, both at the federal and provincial level, parliamentary passage of the amendments to the State Bank Act and the Banking Companies’ Ordinance, agreement on measures to achieve the revised fiscal deficit target, including a realistic envelope for energy subsidies in 2010/11 based on a plan that is yet to be endorsed by the Asian Development Bank and World Bank staffs, and third-quarter fiscal performance that is consistent with achieving the full-year target are among the actions that will be critical for the completion of the fifth review.
6. Staff expects to conduct discussions for the fifth review in early 2011 with a view to presenting to the Board a request for the completion of the fifth review before end-June 2011, at which time, staff will also propose a set of performance criteria for end-June 2011 and structural benchmarks that would form the basis for the sixth and final review under the SBA.
7. Staff supports the authorities’ request for an extension of the arrangement until September 30, 2011. Accordingly, the following draft decision is proposed for adoption by the Executive Board.
Review Availability Date Action
In millions of SDRs In percent of quota In millions of SDRs Approved phasing
November 24, 2008 Board approval of SBA 2,067.400 200.00 …
First Review March 15, 2009 1/ Observance of end-December 2008 performance criteria, completion of first review 568.535 55.00 …
Second Review June 15, 2009 2/ Observance of end-March 2009 performance criteria, completion of second review 766.700 74.17 475.60
Third Review November 30, 2009 3/ Observance of end-September 2009 performance criteria, completion of third review 766.700 74.17 237.75
Fourth Review February 28, 2010 4/ Observance of end-December 2009 performance criteria, completion of fourth review 766.700 74.17 237.75
Fifth Review August 15, 2010 Observance of end-June 2010 performance criteria, completion of fifth review 1,150.050 111.26 …
Sixth Review November 15, 2010 Observance of end-September 2010 performance criteria, completion of sixth review 1,149.815 111.23 …
Total 7,235.900 700.00 951.10
Possible rephasing
Sixth Review August 15, 2011 Observance of end-June 2011 performance criteria, completion of sixth review 1,149.815 111.23 …
Source: Fund staff.
1/ The first review was completed on March 30 and the second purchase was made on April 1.
2/ The second review was completed on August 7 and the third purchase was made on August 11; the availability of the third purchase became conditional on the observance of end-June 2009 PCs.
3/ The third review was completed on December 23 and the fourth purchase was made on December 28.
4/ The fourth review was completed on May 14; the availability of the fifth purchase became conditional on the observance of end-March 2010 PCs.
On November 24, 2008, the IMF’s Executive Board approved a 23-month Stand-by Arrangement (SBA) for Pakistan that was augmented on August 7, 2009 and extended
through December 30, 2010. We hereby request that the SBA be extended for a further nine months, to enable us to implement the policy measures envisaged under our reform program, and to allow sufficient time to complete the remaining fifth and sixth reviews under the SBA. In pursuit of our program objectives, we have submitted to the National Assembly the federal part of the legislative package for the reformed General Sales Tax and the provincial part of the package will be submitted to the provincial assemblies shortly. We have also made progress in devising a plan to ensure financial viability of the electricity sector, which—together with the package of other measures—will enable us to achieve the budget deficit target of 4.7 percent of GDP, revised from the original target of 4.0 percent of GDP to accommodate additional flood-related spending.
The Government and State Bank of Pakistan believe that extending the arrangement through September 30, 2011 will support confidence and help restore macroeconomic stability at a time when our economy is still recovering from the recent devastating floods. We remain committed to implementing a Fund-supported program, and will continue to consult with the Fund in accordance with the relevant Fund policies.
Sincerely yours,
/s/ /s/
Abdul Hafeez Shaikh Shahid H. Kardar
Minister of Finance Governor of the State Bank of Pakistan
International Monetary Fund
Washington, D.C. 20431 USA
Press Release No. 10/515
FOR IMMEDIATE RELEASE
December 27, 2010
IMF Approves Nine-Month Extension of Stand-By Arrangement for Pakistan The Executive Board of the International Monetary Fund (IMF) today approved – on a lapseof-
time basis1- a nine-month extension of Pakistan’s Stand-By Arrangement (SBA), to September 30, 2011.
1 The Executive Board takes decisions under its lapse of time procedure when it is agreed by the Board that a proposal can be considered without convening formal discussions.
The extension will provide time to the Pakistani authorities to complete the reform of the General Sales Tax, implement measures to correct the course of fiscal policy, and amend the legislative framework for the financial sector. The IMF staff is continuing its dialogue with the Pakistani authorities on the program’s fifth review.
A 23-month SBA in an amount equivalent to SDR 5.1685 billion (about US$7.61 billion) was originally approved on November 24, 2008 (see Press Release No. 08/303). On August 7, 2009 the SBA was augmented to SDR 7.2359 billion (about US$10.66 billion) and extended through December 30, 2010 (see Press Release No. 09/281). Following the completion of the fourth review in May 2010, disbursements under the arrangement reached SDR 4.936 billion.”
