Press Release No. 04/259

Press Release: IMF Executive Board Completes Final Review Under Pakistan's PRGF Arrangement

December 1, 2004

The Executive Board of the International Monetary Fund (IMF) completed today the ninth and final review under Pakistan's three-year Poverty Reduction and Growth Facility (PRGF) arrangement. While completion of this review enables the release of the equivalent of SDR 172.3 million (about US$262 million), the Pakistan authorities have already stated that they will not draw the final tranche available under the arrangement, and that they will not seek a successor arrangement once the current PRGF arrangement expires in December 2004.

In completing the final review of the arrangement, the Executive Board also approved Pakistan's request for waivers for the nonobservance of three structural performance criteria and of a continuous performance criterion against the imposition or intensification of exchange restrictions.

Total disbursements under the PRGF arrangement approved on December 6, 2001 (see Press Release No. 01/51) have amounted to the equivalent of SDR 861.4 million (about US$1.31 billion). The PRGF is the IMF's concessional facility for low-income countries. PRGF loans carry an annual interest rate of 0.5 percent, and are payable over 10 years with a 5½-year grace period on principal payments.

Following the Executive Board's discussion of Pakistan's economic performance, Agustín Carstens, Deputy Managing Director and Acting Chair, stated:

"During Pakistan's three-year arrangement under the Poverty Reduction and Growth Facility (PRGF), the country has made a strong recovery from the economic crisis of the late 1990s. Tighter macroeconomic policies and structural reforms have resulted in a stronger external position, a lower public debt burden, renewed access to international capital markets, and a revival in growth, albeit accompanied lately by some increase in inflation. External support has played a part in Pakistan's recovery, but the turnaround has been primarily due to the implementation of strongly owned government policies.

"Executive Directors commended Pakistan on the successful completion of its arrangement under the PRGF. Directors welcomed the authorities' decision not to draw the final tranche, given Pakistan's improved economic situation, so that these resources become available for other countries in need of concessional support from the Fund. The authorities have indicated that they do not wish to seek a successor arrangement following the expiration of the current arrangement. Instead, Pakistan will rely on domestic and international capital markets to meet its financing needs, complemented by continued support from the World Bank, the Asian Development Bank, and bilateral donors. The Fund will maintain a dialogue with the authorities on economic and financial developments and policies in the context of the Fund's normal consultations with member countries.

"Pakistan continues to face major challenges in trying to meet its Millennium Development Goals. Social indicators remain weak. To achieve a significant and lasting reduction in poverty, strong, non-inflationary growth will need to be maintained, but the authorities will also need to ensure that growth will benefit the poor. Maintaining high rates of economic growth will require the continued implementation of sound macroeconomic policies, with monetary policy focusing on maintaining low inflation and avoiding the entrenchment of inflationary expectations, as well as structural reforms. A continued fiscal effort will be needed to reduce the public debt burden further, while increasing funding for social spending, consistent with Pakistan's Poverty Reduction Strategy Paper. The authorities will furthermore need to ensure that provincial and local governments have the administrative and financial means to carry out their increased responsibilities for the delivery of key public services, including health care and education," Mr. Carstens said.