An International Monetary Fund (IMF) staff mission, led by Mr. Jeffrey Franks, met with the Pakistan authorities in Dubai from February 1-9, 2014 for discussions on the second review of Pakistan’s IMF-supported program under the Extended Fund Facility (EFF) approved by the Executive Board of the IMF on September 4, 2013. The IMF team held productive discussions with Pakistan’s Finance Minister Senator Mohammad Ishaq Dar, acting Governor State Bank of Pakistan (SBP) Ashraf Wathra, Secretary Finance Dr. Waqar Masood Khan , and other senior officials. At the conclusion of the mission, Mr. Franks issued the following statement:
“The IMF mission held constructive discussions with government and central bank officials on the economic performance under the EFF program and is encouraged by the overall progress made in pushing ahead with policies to strengthen macroeconomic stability and reviving economic growth. The mission reached staff-level understandings with the authorities on a set of economic policies detailed in an updated Letter of Intent, which will be subject to Executive Board approval.”
Pakistan’s economy is showing signs of improved economic activity. Services and manufacturing are driving better-than-expected GDP growth, as reforms in the electricity sector seem to be bearing fruit with electricity shortages and unscheduled load-shedding declining. Led by large scale manufacturing and service sectors, growth is picking up and is now expected to reach about 3.1 percent for FY2013/14 as a whole, compared to the earlier estimate of 2.8 percent. Fiscal performance continued on track in the second quarter of 2013/14, with initial consolidation efforts relying on revenue mobilization and reduction in energy subsidies. On the external side, while the SBP has continued its efforts to rebuild reserves, and the foreign exchange market has stabilized, pressures on the balance of payments are likely to persist for some months.
“The authority’s reform program remains broadly on track, with the government meeting all of the quantitative performance criteria by end December 2013, with the exception of the targets on SBP’s net swap/forward positions and the ceiling on government borrowing from SBP. The authorities have reaffirmed their commitment to adopt the necessary corrective actions, including measures to improve the financing of government debt through a medium-term strategy of institutional development and deepening of the government’s securities market. Progress on the unwinding of the SBP’s swap/forward positions to reach program limits is underway, and progress on this front is satisfactory so far.
“The mission recognizes the authorities’ resolve to pursue agreed structural reforms to enhance medium term growth prospects and rebuild foreign exchange reserves to underpin investor confidence. Timely implementation of reform measures articulated in the National Energy Policy is of high priority in ensuring affordable and reliable supply of energy. Recognizing that fixing Pakistan’s energy problem calls for a medium term strategy of sustained reform, the authorities agreed to press forward with efforts to improve energy sector governance, promote private investment in electricity power generation and modernization, and transition to a market-based system of gas pricing. Furthermore the government’s privatization agenda remains on track with capital market transactions for some companies, investments by strategic investors in others, and restructuring to improve resource allocation and limit poor performance. Decisive efforts to broaden the tax net through the elimination of tax exemptions and loopholes granted through Statutory regulatory Orders (SROs) are critical to the future of Pakistan’s economy.
“Protecting the most vulnerable from the direct and indirect impact of fiscal adjustment continues to be a priority of the IMF as well as the Government of Pakistan. To that end, the mission acknowledges the government’s efforts to deepen its support to the poor through expanding the Income Support Program (BISP), and other mechanisms, and welcomes its commitment to upgrade the delivery system to ensure timely payments to 4.9 million eligible families.
“The IMF mission staff will prepare a report for the IMF Executive Board on the second review under Pakistan’s EFF that is tentatively scheduled for consideration in late-March, 2014. Upon approval, SDR 360 million (about US$550 million) would be made available.
“The mission thanks Pakistan authorities and technical staff for their cooperation and reaffirms the IMF’s support to implement their economic reforms”