* Talks this weekend between IMF and Pakistan
* Power crisis seen as big economic risk
(Adds World Bank comment)
By Sue Pleming
WASHINGTON, April 23 The International Monetary
Fund's board will likely meet in mid-May to consider the next
tranche of Pakistan's $11.3 billion loan, a source close to
talks between IMF officials and Islamabad said on Friday.
Pakistani finance officials are in Washington this week for
spring meetings of the IMF and are also talking to the World
Bank and the Asian Development Bank over steps being taken to
raise electricity tariffs and other taxes that are unpopular
with the public and politically risky for the government.
The IMF's board had originally been scheduled to meet on
March 31 to approve the next portion of the emergency package,
which was first agreed on in November 2008 to avert a balance
of payments crisis in Pakistan and shore up reserves.
Pakistan's budget has also been strained by the cost of
battling Taliban insurgents along its border with Afghanistan.
The source, who asked not to be named as the issue is
sensitive, said talks with Pakistani officials would continue
this weekend and the board meeting would likely be in mid-May
to release the fifth installment, worth about $1.2 billion.
He said no definite date had been set, but ruled out the
meeting would be held on May 3, as announced by the Pakistani
prime minister's office last week.
"They are moving forward and things are going to be
resolved very soon," the source said of current negotiations.
Experts said the Pakistani government was coming under
increasing pressure from financial institutions, but there
appeared to be some flexibility on the part of the IMF, which
understood Islamabad was in a tight political and fiscal spot.
"The IMF understands the dynamic here and will give some
breathing space," said Maria Kuusisto, a Pakistan expert with
the political risk research firm Eurasia Group in London.
"It (Pakistan) needs the next tranche, but it cannot afford
the political backlash against it by increasing tariffs now."
POWER ISSUE IS MAJOR CONSTRAINT
Pakistan is battling a chronic electricity shortage, with
rolling blackouts countrywide, and is also struggling to keep
its budget deficit at the levels required under IMF reforms.
Under the IMF program, the deadline for another increase in
electricity tariffs was April 1, but Pakistan failed to meet
that and has also been slow in implementing a value-added tax.
The IMF board meeting was delayed in part because the IMF
has been waiting for the World Bank and Asian Development Bank
to say it was satisfied Pakistan would keep its commitment to
deal with both the power tariff issue and "circular debt."
The World Bank said on Friday that Pakistan's government
had told the IMF if would make its pending tariff increase
effective from April 1, a commitment that "satisfied" the ADB
and the bank and had been conveyed to the IMF in a memorandum.
The bank believed Pakistan's government was "serious" about
implementing the reforms, it said.
Pakistan is also under pressure to tackle the problem of
circular debt, which creates a chain reaction. Distributors
cannot pay power producers, who in turn cannot pay fuel
suppliers, resulting in even greater electricity cuts and
putting more strain on the economy and industry,
"This is really the key issue that the government is
struggling with and causing huge liquidity problems for banks
and the government," said Eurasia Group's Kuusisto.
Seeking to ease IMF concerns, Prime Minister Yusuf Raza
Gilani announced this week the government would pay off 116
billion rupees ($1.38 billion) of the circular debt.
The IMF has cited the power shortage as a serious economic
constraint. The electricity crisis is so chronic that the
country's central bank announced on Friday that it and all
commercial banks would be closed on Saturdays as part of
measures to cut state electricity use.
Lengthy power outages, known as load-shedding, can last six
to eight hours a day in cities, while cuts are lengthier in
rural areas and have led to protests.
Adding to Pakistan's economic woes, the United States is in
arrears paying back about $2 billion in military aid it owes to
Pakistan under a program called the Coalition Support Fund.
Last month, Pakistani Foreign Minister Shah Mehmood Qureshi
said a "substantial" amount of the money would be paid by the
end of April, with Washington promising the remainder by the
end of June.
Pakistani sources said as far as they knew the money had
not yet started trickling in, but they expected Washington to
stick to its promises.
(Editing by Peter Cooney)