IMF clears $75 m loan to Pakistan

ISLAMABAD, JAN 15: The International Monetary Fund (IMF) on Thursday approved a US $575 million loan payment for sanctions-hit Pakistan, ...

ISLAMABAD, JAN 15: The International Monetary Fund (IMF) on Thursday approved a US $575 million loan payment for sanctions-hit Pakistan, restarting a lending programme frozen after Prime minister Nawaz Sharif’s government conducted a series of nuclear tests in May, 1998.

The loan payment, drawn from the IMF’s long-stalled $1.56 billion package for Islamabad, will give an immediate financial boost to the cash-strapped government, and could clear the way for more loans from other donors and for the rescheduling of Pakistan’s foreign debt.

“The IMF board approved the review,” an IMF spokesman said, announcing the payment in Washington. He declined further comment, saying the IMF’s board would issue a full statement on Friday.

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Islamabad had hoped for more money up front to deal with its financial problems. But international lenders have been cautious, citing difficult negotiations with the government.

Financial aid from the IMF and other donors was held up since May 1998 when the international communityimposed economic sanctions on Pakistan and India, for conducting tit-for-tat nuclear tests. The tests drew fears of a nuclear arms race between Pakistan and India.

Fearing a debt default, the United States in December rolled back sanctions against Islamabad, which has raised its sales tax, allowed a de facto devaluation of the rupee and worked through a bitter dispute with mostly foreign-backed independent power producers over tariffs. A rise in power and gas rates is also expected to be imposed soon. The US decision to ease the sanctions cleared the way for the Washington-based IMF to hammer out a new economic accord with the government, setting conditions for the resumption of lending.

On top of the IMF’s contribution, the World Bank and other donors were expected to speed cash to Islamabad to help right the economy after the sanctions. The World Bank’s board was scheduled to consider a $350 million structural adjustment loan for Pakistan next week. That loan would support the banking and public utilitysectors, and help reform the government’s tax administration.

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Islamabad also hoped an IMF agreement would set the stage for the restructuring the country’s $32 billion foreign debt. Bankers say the country has arrears of $1.5 billion, was using grace periods to delay payments and was facing a $5.5 billion balance of payments deficit for the fiscal year to the end of June.

An IMF spokesman said more than $490 million from Thursday’s loan payment was targeted towards helping the government cope with a shortfall in export earnings. Export earnings have dropped over 20 per cent in the first half of fiscal 1998-99, according to latest figures released this week.