Multilateral donors halt budgetary support to Pakistan, seek IMF's 'Letter of Comfort'

Karachi, Feb 01(ANI): Multilateral donors- including the World Bank (WB), the Asian Development Bank (ADB) and the Islamic Development Bank (IDB)- have reportedly halted their budgetary aid to Pakistan.

They have reportedly asked the Pakistan government to provide a Letter of Comfort (LoC) issued by the International Monetary Fund (IMF) prior to disbursement.

However, the IMF, the country's economic lifeline, is losing patience with the Pakistan People's Party (PPP)-led coalition government, which lacks the political resolve to take measures such as imposing a reformed sales tax to ease the fiscal deficit.

The Pakistan government is sandwiched between the IMF, pressing for implementation of economic reforms - and other political parties warning it against taking unpopular decisions under the IMF's diktat.

It had earlier sought a nine-month extension in the Stand-By Arrangement (SBA) - till September 30, 2011 - due to the delay in the implementation of Reformed General Sales Tax (RGST) and the additional time required to restore macroeconomic stability in the aftermath of the 2010 devastating floods in the country.

"IMF SBA facility is almost suspended and therefore multilateral donors want LoC extended by IMF for loan disbursement under budgetary support," sources close to Pakistan Finance Minister Abdul Hafeez Sheikh told Business Recorder.

Sources said Finance Ministry officials had informed an ADB delegation recently that 95 percent work on the RGST had been completed. It is unclear whether the mission was aware that the remaining 5 percent- consisting of critical support in parliament- remained the major impediment to the RGST implementation, the report said.

"Government is also planning to launch additional tax measures for flood affected people," said Finance Ministry officials, adding, "We are looking for inflow of funds."

Officials maintain that Pakistan's economy is facing challenges due to slow progress in flow of foreign investment, flood problems and poor performance of the manufacturing sector.

The IMF has been strictly monitoring the country's performance indicators under a stand-by arrangement (SBA) signed by Pakistan with the organisation in November 2008 for a 11.3-billion-dollar loan package.

Multilateral lenders and the Friends of Democratic Pakistan (FoDP), a group of donor countries, are also carefully evaluating these indicators prior to taking any decisions with respect to disbursement of their pledges.

"As there has been poor cash inflow of disbursement from the FoDP, the obvious conclusion is that Pakistan has not yet come out of the woods as far as its economic performance is concerned," argue analysts. (ANI)