The International Monetary Fund on Thursday said Pakistan has so far complied with most of the conditions under its $6.7 billion loan program, and gave the country its next chunk of aid.
The IMF’s board said Pakistan had not managed to stick to its promise to have a certain level of international reserves by the end of September, but waived the requirement since the government has since fixed the issue.
The approval means Pakistan is set to receive about $553 million from the IMF.
“The authorities’ performance under the [program] has been satisfactory,” Nemat Shafik, the IMF’s deputy managing director, said after the board discussed Pakistan.
“Nonetheless, overall vulnerabilities remain high, and it will be crucial to consolidate the fiscal adjustment, boost external buffers, and deepen structural reforms.”
Pakistan had averted a balance of payments crisis in 2008 after securing an $11 billion IMF loan package, which was suspended two years ago after economic and reform targets were missed.
This time, Prime Minister Nawaz Sharif, elected in May, promised the IMF to privatize loss-making state industries, reform a faltering energy sector, expand Pakistan’s tiny tax base and cut government borrowing.
But the financial situation remains dire. Pakistan’s foreign exchange reserves have dwindled. Tax collection is also a huge hurdle in a country where just 0.57 percent of citizens paid income tax last year, contributing to one of the lowest tax-to-GDP ratios in the world. Public services are woefully underfunded.
“A more ambitious approach is needed to improve tax administration and eliminate tax loopholes,” Shafik said.