Pakistan-Fourth Review Under the Stand-By Arrangement, Requests for Waivers Of Access—Staff Report; Staff Statement and Supplement; Press Release on the Executive Board Discussion; and Statement by the Executive Director for Pakistan-IMF Country Report No. 10/133
TERNATIONAL MONETARY FUND
PAKISTAN
Fourth Review Under the Stand-By Arrangement, Requests for Waivers
of Performance Criteria, Modification of Performance Criteria,
and Rephasing of Access
Prepared by the Middle East and Central Asia Department
(In consultation with…
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TERNATIONAL MONETARY FUND
PAKISTAN
Fourth Review Under the Stand-By Arrangement, Requests for Waivers
of Performance Criteria, Modification of Performance Criteria,
and Rephasing of Access
Prepared by the Middle East and Central Asia Department
(In consultation with other departments)
Approved by David Owen and Michele Shannon
May 3, 2010
Discussions were held during February 10–17, 2010 in Dubai. Staff met with Finance Minister
Tarin, State Bank of Pakistan (SBP) Governor Raza, Finance Secretary Siddique, and other senior
officials. The IMF team consisted of Messrs. Mazarei (Head), Wieczorek, Kock, and Piazza (all
MCD), Mr. Jonas (FAD), Mr. Gray (SPR), and Mr. Ross (Resident Representative). Mr. Parvez
(Asian Development Bank) participated in the discussions on structural issues. Mr. Tarin resigned
effective end-February. His successor, Mr. Abdul Hafeez Shaikh, who was appointed as Finance
Advisor to the Prime Minister with the status of finance minister, confirmed program understandings
during his visits to Washington in late March and during the Spring Meetings, as well as an April
9–13 staff visit to Islamabad.
An SBA in the amount of SDR 5.169 billion (about $7.6 billion, or 500 percent of quota) was
approved by the Executive Board on November 24, 2008. On August 7, 2009, the SBA was
augmented to SDR 7,235.9 million ($11,327 million, or 700 percent of quota) and extended through
end-2010. The third program review was completed on December 23, 2009. Disbursements under the
program thus far amount to SDR 4,169.34 million ($6,414 million), including SDR 713.35 million
($1,097 million) that was made available for budget financing.
In the attached Letter of Intent, the authorities request completion of the fourth review under the
SBA and the fifth disbursement in the amount of SDR 766.7 million. Out of this amount,
SDR 237.75 million will be made available for budget financing.
Program implementation has been mixed in the context of a difficult political and security
environment with delays on the structural agenda and some buildup of quasi-fiscal liabilities,
but also progress on important and politically difficult reforms. While performance against end-
December targets was generally in line with program assumptions, preliminary data indicate that the
end-March ceilings on the overall budget deficit (excluding grants) and net government borrowing
from the SBP were exceeded by 0.4 and 0.2 percent of GDP, respectively. The authorities, therefore,
request waivers of nonobservance for the related end-March performance criteria based on the
temporary nature of part of this slippage as well as agreement to remedial actions. All other
quantitative and continuous performance criteria through end-March were met. The end-December
structural benchmark on the submission of the VAT law to parliament was met with a delay (the
federal law was submitted on February 25 and provincial laws were submitted to the provincial
assemblies in late March). Implementation of an expedited sales tax refund system (end-March
structural benchmark) has begun and is expected to be finalized by end-June. The authorities have
also committed to remedial steps to address quasi-fiscal issues.
Looking forward, the authorities have proposed relaxation of the annual budget deficit target by
0.15 percent of GDP (to 5.1 percent of GDP) to accommodate urgent security spending, which will
be financed by additional external privatization receipts. At the same time, taking into account
Pakistan’s improved external position, the end-June 2010 target for the net foreign assets of the
central bank will be revised upward by $300 million. The authorities request that the related
performance criteria for end-June 2010 be modified accordingly. In view of the delay in the fourth
review, the authorities also request rephasing of access. Given agreed remedial measures and taking
into account the difficult security environme
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