The International Monetary Fund (IMF) has declined to grant a Letter of Comfort to Pakistan, a private TV channel reported on Monday.
The letter is mandatory for starting any negotiations for financial assistance with global financial institutions like the World Bank and Asian Development Bank. The matter was discussed during the recent meetings of Finance Minister Abdul Hafeez Shaikh with the IMF management in Washington DC on the sidelines of annual meetings of the World Bank and IMF. The minister was “politely conveyed” that they had failed to honour commitments of financial reforms which resulted in the termination of programme prematurely, as the last tranche of $3.3 billion was not released by the IMF.
“We have to present this development in the IMF board, which will never approve issuance of Letter of Comfort to Pakistan,” officials concerned told the minister, warning that such a “situation could further isolate Pakistan and hamper its ability to negotiate with other financial institution, like the World Bank and ADB, for whom IMF’s letter is a prerequisite for any talks with a country,” highly-placed sources told the TV channel. Pakistan had agreed to introduce value-added tax (VAT), reduce subsidies in the power sector and reduce government s borrowing from the State Bank while starting the $11.3 billion loan programme with the IMF. “The IMF is not averse to negotiating a new loan for Pakistan, but the non-satisfactory performance will certainly echo in the board meeting when it comes to the approval stage,” the source pointed out. On the other hand, the finance minister had been asserting before the media that they had decided to end the programme on their own because the country s financial situation was better.
Time for Zardari's trip to not-smiling China, House of Saud and Royal London.
Not surprising
The real facts are that there can be no LoC until the IMF has completed the Article IV consultation report and the staff makes its recommendations in a report to the Board. However, given the present economic situation and the risks ahead, the staff is unlikely to say very many nice things. The most they will say is that the situations is fragile with risks on the downside. The Board, as it generally does, will endorse the staff's findings and recommendations.
That may still not get us the Loc we want.
For a change, it seems, the IMF is sticking to its guns: NO VAT, NO MONEY.
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