IMF to Lend Pakistan $3.2 Billion More to Support Social Costs, Build Reserves
| Author | International Monetary Fund |
The Board reviewed progress under a $7.6 billion Stand-By Arrangement for Pakistan that was agreed in November last year. During the August 7 discussion, Directors agreed to increase lending by $3.2 billion, after a request from the Pakistan government to meet the country's increased balance of payments needs resulting from higher oil prices. Pakistan will also benefit from the proposed allocation of Special Drawing Rights, which will supplement its reserves.
About $1.4 billion of the new IMF resources will be made available, on a temporary basis, for budget financing during 2009/10. The main purpose is to provide bridge financing until donor support pledged at an April donors conference in Tokyo starts to come in. Donors pledged $5.7 billion to Pakistan over three years.
Like many other emerging markets, Pakistan has been hit by the global economic and financial crisis. "But, despite the challenges brought on by the global downturn and an extraordinarily difficult security situation, the government has managed to stabilize the economy," said Adnan Mazarei, head of the IMF's mission to Pakistan.
Buffeted by a volatile political and security situation, Pakistan's growth has been anemic. and the near-term outlook for economic activity, especially manufacturing, remains weak.
A rebound in agriculture on the back of a bumper wheat crop helped maintain growth in positive territory. However, with increasing weakness in large-scale manufacturing, exports, and private sector credit, the estimate of real GDP growth for 2008/09 has been lowered from 2.5 to 2.0 percent and is projected by the IMF at 3 percent for 2009/10. Moreover, the Federal Bureau of Statistics recently revised down real GDP growth for 2007/08 from 5.8 to 4.1 percent, indicating that the economic slowdown began before 2008/09.
Inflation has continued to decline, but it remains high with core inflation at just below 16 percent in June.
However, with imports contracting sharply and workers' remittances continuing to grow, Pakistan's external current account position has improved somewhat. Despite lower exports, the current account deficit is estimated to have declined by more than $5 billion (3.2 percentage points of GDP) in 2008/09 due to a significant decline in imports, higher workers' remittances, and increased support from the United States.
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