World News

IMF increases Pakistan loan to £6.7 billion

WASHINGTON (Reuters) - The International Monetary Fund on Friday increased its loan to Pakistan by $3.2 billion (1.9 billion pounds) to a total of $11.3 billion (6.7 billion pounds) and said some of this money would be available immediately.

“Pakistan’s economy has continued to stabilise. Reforms in the financial sector and the foreign exchange market have been progressing, and steps have been taken to strengthen the social safety net,” said IMF Deputy Managing Director Murilo Portugal in a statement.

The IMF said it will immediately release $1.2 billion to Pakistan under the economic program, first agreed in November 2008, to help the country deal with a financial crisis.

The IMF said a portion of the increased funding will be used to finance priority spending by the government until the disbursements of donor support pledged for 2009/10 are received.

The remainder of the funding will be used to bolster Pakistan’s foreign exchange reserves and to protect the economy against shocks, such as a surge in global oil prices.

The IMF’s mission chief to Pakistan, Adnan Mazarei, said it was critical that donors deliver on their aid pledges without any delay, especially since spending needs had grown with millions of people displaced by fighting between government forces and the Taliban.

Still, Mazarei said key targets under the IMF program had been achieved despite the difficult and political and security conditions.

He said in addition to the extra financing from the IMF, Pakistan would be eligible for another $1 billion in IMF resources under a special allocation of $250 billion in Special Drawing Rights (SDRs) for the fund’s 186 member countries.

The allocation of the SDRs, an international reserve asset and the fund’s internal unit of account, was agreed by a Group of 20 leaders’ summit in April to help countries weather the global financial crisis.

But Mazarei said it was important to boost low tax revenue in Pakistan and urged the government to implement plans for value added tax and broader tax administration reforms.

“These reforms will make the economy less vulnerable, provide the steady flow of resources needed to reduce poverty and develop basic infrastructure, and strengthen the government’s ability to deal with the pressing needs of the population, which are now compounded by the large number of (internally displaced people),” the IMF said.

The IMF said unresolved problems in the energy sector continue to undermine Pakistan’s growth potential and burden public finances.

Reporting by Lesley Wroughton; Editing by Leslie Adler