IMF concerned about Pakistan economic reforms

Tuesday, 2 November 2010 22:57 - - {{hitsCtrl.values.hits}}

KARACHI (Reuters) - The International Monetary Fund has expressed concern about slow implementation in Pakistan of energy sector reforms and a revised general sales tax, officials said on Tuesday.

IMF and Pakistani officials are meeting to discuss the release of the sixth tranche of an $11 billion emergency loan agreed in November, 2008, which has kept the economy afloat. “Though things are not very good, it is still too early to say whether the sixth tranche is in danger,” said a government source.

If the IMF does not approve the release of the sixth tranche other donors would be hesitant to provide aid or loans as well, which would threaten Pakistan’s economic stability.

“Staying in the IMF programme has a lot of signalling value to other donors, that the country is on the right track and is subject to quarterly reviews,” said Asif Qureshi, director at Invisor Securities Ltd.

The reforms are politically sensitive for the unpopular government which faces a host of problems, including a stubborn Taliban insurgency.

The task of securing foreign aid has become more urgent since devastating summer floods caused some $9.7 billion in damage.

Failure to enact the reforms could undermine efforts to secure reconstruction aid and pile more pressure on the economy, which was already fragile before the disaster.

Underlining concern about the pressure on the economy, the Senate, parliament’s upper house, passed a non-binding resolution on Tuesday urging international financial institutions including the IMF, World Bank and Asian Development Bank, to reschedule Pakistan’s debt to allow the government to divert resources to flood-affected areas.

The last IMF review was completed in May and the review for the release of the sixth tranche has been delayed since August over several issues, such as an increase in power tariffs and the implementation of a reformed general sales tax (RGST).

Pakistan said in June it would replace its general sales tax (GST) with the revised version by Oct. 1, but that deadline has slipped to Dec. 1.