The Executive Board of the International Monetary Fund (IMF) has approved a three-year arrangement for Pakistan under the Poverty Reduction and Growth Facility (PRGF)1 totaling SDR 1.034 billion (about US$1.322 billion). As a result of today’s decision, Pakistan will be able to draw SDR 86.16 million (about US$109.6 million) under the arrangement.
Following the Board discussion on Pakistan, Eduardo Aninat, Deputy Managing Director and Acting Chairman, said:
“Over the last two years, Pakistan has established a record of sound macroeconomic management and timely implementation of structural reforms, as confirmed by the recent completion of a Stand-By Arrangement with the Fund. However, a move to higher sustainable growth and a better sharing of the fruits of growth remain essential to tackle Pakistan’s widespread poverty and weak social development indicators.
“The government, in broad consultation with local communities and other stakeholders, has prepared an Interim Poverty Reduction Strategy Paper (I-PRSP), which provides a sound basis for concessional assistance from the Fund and the World Bank. In preparing the full PRSP, the authorities will need to develop a more thorough costing of poverty alleviation and social programs, and a fuller articulation of strategies in key sectors, particularly for human development. Solid support by domestic stakeholders, clear allocation of responsibilities, a detailed devolution plan, accountability at all levels of the administration, and continued donor assistance will be key in achieving the strategy’s objectives.
“Under the PRGF-supported program and in line with the objectives stated in the I-PRSP, the government will implement an ambitious reform agenda aimed at raising growth and reducing poverty, while consolidating macroeconomic stability and external viability. The strategy centers on sustained fiscal adjustment supported by a major reform of tax administration and a widening of the tax net, while increasing public spending for poverty alleviation. A cautious monetary policy, under the floating exchange regime, will aim at keeping inflation below 5 percent and raising official reserves to three months of imports by the end of the three-year program.
“Medium-term fiscal consolidation, combined with significant external assistance, will allow a substantial reduction in the public debt as a share of GDP and free up resources for growth-enhancing and poverty-reducing expenditure. However, in order to achieve the targeted social outcomes, the government will need to complement higher resource mobilization with better prioritization of public expenditure allocation, so as to allow higher outlays on social sectors, especially health and education. Enhanced governance and transparency in public finances, particularly in the context of the devolution of responsibility for most social service delivery to local governments, will also be important.
“Over the program period, the government will pursue a broad agenda of restructuring and privatization of public enterprises, reducing the government’s role in agricultural marketing, ensuring that administered gas and electricity prices broadly reflect market conditions, deepening the liberalization of the financial sector, and integrating the kerb and interbank foreign exchange markets.
“Pakistan’s economic outlook is now clouded by considerable uncertainty in view of the impact of September 11 events and the ongoing slowdown in world demand, which adversely affect Pakistan’s prospects for growth, exports, and capital flows. Achieving the objectives of the program will be highly dependent on a rapid return to regional stability. At the same time, the international community has indicated its strong support for the reform program over the next three years, with exceptional financial assistance of about US$9.5 billion in form of bilateral support, including debt relief, and assistance from international financial institutions. In this connection, and in line with the Managing Director’s statement that the Fund is prepared to provide advice and additional support to members that adopt suitable policies, as part of a joint international effort to strengthen confidence in the global economy, we will keep under review Pakistan’s PRGF program and Fund support for it,” Mr. Aninat said.