KARACHI - Due to resumption in the IMF-supported Stand-By Arrangement Programme, Pakistan is expected to start receiving all of its remaining funds from the US and other multilateral lending agencies in the last quarter (April-June) of the current fiscal year 2010-11. Besides disbursement of pending $1.7 billion funds of a total IMF loan to Pakistan in June 2011, around $600 million worth of aid flows could be released under the Kerry-Lugar Bill between March and June 2011. Similarly, a large amount of the US military aid seems to be materialised by the US administration under its loan instrument of Coalition Support Fund (CSF) during the upcoming quarter. This sort of external financing, which is likely to come in the form of the aid and capital flows, will bring a short-term stability to countrys economy, bolstering Pakistans foreign exchange reserves position and shore up the value of Pak rupee against the US dollar ad other major currencies. According to a latest report issued by the Standard Chartered Bank, the austerity measures announced by the federal government recently in a view to curb the budget deficit to 5.5 percent of GDP for the FY11 along with revival of the IMF programme will give a significant boost to the economy and revive the confidence of the investors. Such measures will give the US administration confidence to release the deferred funds. The US administration has pledged $1.5 billion of annual aid under the Kerry-Lugar bill, but only $250 million was released during the first eight months of FY11. Disbursement has been slow due to the suspension of the IMF programme and, more recently, the US protest against the imprisonment in Pakistan of the US official Raymond Davis on murder charges. On 16 March, the matter was resolved as courts acquitted Davis after he reached a settlement with the families of the deceased, the report stated. The World Bank and Asian Development Bank (ADB) have pledged $1 billion each for reconstruction spending in flood-affected areas. During the first seven months of FY11, Pakistan received only $550 million from the World Bank and $400 million from ADB. The slow disbursement has been due to the suspension of the IMF programme; the resumption of the programme is likely to prompt these multilateral agencies to resume lending, the report revealed. The report projected that austerity measures and higher external financing would reduce government borrowing from the markets. Yields should continue to inch down on lower T-bill/bond supply. However, inflation is likely to pick up in the short-term due to rising international commodity prices and new tax measures. The removal of general sales tax (GST) exemptions, the increase in excise duty and the reduction of power subsidies will push inflation higher in Q2CY11. The central bank is likely to keep the policy rate unchanged at 14 percent in 2011 given inflation risks, limiting the downside for the rates market. Unlike in the past, the government is now demonstrating its commitment to stop printing money, the main cause of high inflation. Since January 2011, the government has limited its borrowing from the State Bank of Pakistan (SBP) to Rs 1.29 trillion, implying zero net borrowing. This has helped to contain money supply growth M2 growth decelerated to 14.5 percent YoY as of end-February 2011 from 16 per cent YoY at the end of 2010. Inflation slowed to 12.9 percent YoY in February from 15.5 percent at end-2010, it mentioned. On 11 February, the government reduced its oversized cabinet to 22 ministers from 65, setting the tone for tougher austerity measures. On 16 March, the government announced a Rs 176 billion (1pc of GDP) austerity plan to limit the deficit for FY11 (ends 30 June 2011) to 5.5 percent of GDP, it said. The bulk of the savings will come from Rs 100 billion cut in FY11 investment spending, while new tax measures are expected to raise additional revenues of Rs 53 billion. These measures are backed by the IMF, and successful implementation will allow the IMF Board to release the next $1.7b tranche under the programme in June 2011, it added.