World Bank, IMF agree to give $550m

[Lahore_Real_Estate]

WASHINGTON: The International Monetary Fund and the World Bank have agreed to jointly provide more aid to flood-hit Pakistan during the current fiscal year but both also insisted that the country needed to continue its economic reforms, officials said on Thursday.

“In response to this (flood), I will ask the IMF Board to approve $450 million in emergency assistance to be made available this month,” said IMF Managing Director Dominique Strauss-Kahn.

“The World Bank is committed to helping the people of Pakistan during this time of need and has made $1 billion available to finance immediate recovery needs and longer-term reconstruction,” said the bank’s President Robert B. Zoellick while adding another $100 million to $900 million already committed.

The additional $100 million, announced after Mr Zoellick’s meeting with Finance Minister Hafeez Sheikh on Wednesday, will be made available during the current fiscal year.

The money will come from the bank’s fund for the poorest countries, the International Development Association, which means that the loans are concessional and carry no interest payments. This funding is already programmed money for Pakistan that is being diverted to meet immediate needs.

“We need to respond strongly to the crisis at hand, but we need to do it without losing sight of important economic reforms,” said Mr Zoellick while emphasising the need to continue the reforms Pakistan negotiated with the World Bank Group two years ago.

Mr Strauss-Kahn went a step ahead and indicated that Pakistan had already pledged to continue those reforms.

“Our dialogue with Pakistan on the current Standby Arrangement is progressing and the authorities have expressed their intention to implement measures for the completion of the fifth review of the programme later this year,” he said.

“We will stay in close contact as these efforts proceed. Completion of the fifth review will allow the Fund to disburse an additional $1.7 billion, bringing total IMF disbursements (including emergency assistance) to $2.2 billion in the second half of 2010,” Mr Strauss-Kahn said.

The finance minister told a joint briefing with the IMF chief at the Fund’s headquarters that “Pakistan remains committed to the reform efforts that will put public finances on a sustainable basis and lay the foundations for growth.”

Under a 2008 loan programme with the IMF, Pakistan pledged to implement tax and energy sector reforms, reduce inflation, curb budget deficit and give full autonomy to the State Bank.

“This disaster underscores Pakistan’s fiscal vulnerability and dependence on foreign aid. Renewed commitment to governance and fiscal reforms will be important to mobilise domestic revenues and ensure that funds reach the poor people it is intended for,” Mr Zoellick said.

He noted that “the response of donors to the floods will also depend on the government’s ability to deliver in this area.”

While announcing emergency funding on Thursday, the IMF also quoted its director for the Middle East and Central Asia Department, Masood Ahmed, as saying that given the disaster’s impact, some of the parameters of the existing loan arrangement may need to be changed. “The economic impact is going to be very significant,” Mr Ahmed said, noting in particular the floods’ devastating effect on agriculture. “The floods will lower growth and will affect the government’s budget because they will have to spend more and they’ll be able to raise less revenue. And Pakistan will have massive reconstruction costs down the road running into the billions of dollars.”

The IMF chief Mr Strauss-Kahn agreed, noting that the floods had already caused serious damage to the country’s infrastructure, severely impacted its economic outlook and resulted in a worsening of the fiscal situation.

“This natural disaster will have an important effect on the country’s economy,” he added.

A Pakistani delegation, led by the finance minister, held a series of meetings with IMF staff and management in Washington during the past week to discuss the disaster’s implications for the country’s budget and longer-term growth targets.

Discussions on Pakistan’s macroeconomic framework will continue in the coming weeks.

The IMF and Pakistan also agreed to hold the fifth review of an existing $11.3 billion loan arrangement in October.

Official sources said that the IMF had agreed not to attach new performance criteria or benchmarks to the loan programme initially negotiated in 2008.