UPDATE 2-IMF releases $556 million loan tranche for Pakistan

Mon Mar 24, 2014 6:52pm EDT

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(Adds details from IMF statement)

WASHINGTON, March 24 (Reuters) - Pakistan received a $556 million loan installment from the International Monetary Fund, which on Monday signed off on its second review of its aid program to Islamabad.

In completing the review, the IMF said it waived some conditions, including a requirement for Pakistan to limit government borrowing from the central bank and to meet a target for the central bank's net swap/forward position.

The IMF said Pakistan has made "commendable progress," but needed to do more to reduce its vulnerabilities.

"Monetary policy should increasingly focus on containing inflationary pressures and every effort should be made to reduce the stock of government borrowing from the State Bank of Pakistan in line with program targets," David Lipton, the IMF's first deputy managing director, said in a statement.

"Agreed legislation to enhance central bank independence should be presented for parliamentary approval without undue delay," he added.

Lipton also called on Pakistan to take additional steps to improve tax collection, adding that the December 2013 investment incentive package made the tax-collection situation worse.

Last September, the IMF saved Pakistan from possible default by agreeing to lend it $6.7 billion over three years. In return, Pakistan must make good on economic reforms such as a longstanding promise to privatize loss-making state companies.

The IMF gives each subsequent disbursement after confirming a country is on track with the conditions of the bailout. Including Monday's aid, Pakistan has gotten three tranches that total about $1.6 billion from the lender.

The IMF has also called on Islamabad to crack down on rampant tax evasion and broaden the tax base by eliminating tax exemptions and loopholes.

The country's finances got a further boost after Saudi Arabia loaned Pakistan $1.5 billion to help shore up foreign exchange reserves, meet debt-service obligations and undertake large projects, Pakistani officials said this month. (Reporting by Anna Yukhananov, additional reporting by Timothy Ahmann; Editing by James Dalgleish, Andrea Ricci and Lisa Shumaker)

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