Press Release No. 14/505

Press Release: Statement at the end of an IMF Staff Mission on Pakistan

November 8, 2014

An International Monetary Fund (IMF) staff mission, led by Mr. Jeffrey Franks, visited Dubai from October 29-November 8, 2014 to conduct discussions on the fourth and fifth reviews of Pakistan’s SDR 4.393 billion (about US$6.6 billion) Extended Fund Facility (EFF), approved by the IMF’s Executive Board on September 4, 2013 (Press Release No. 13/322). The mission met with Finance Minister Ishaq Dar, State Bank of Pakistan (SBP) Governor Ashraf Wathra, and other senior officials.  

At the conclusion of the mission, Mr. Franks issued the following statement:

“The IMF mission held productive discussions with government and central bank officials on Pakistan’s economic performance under the EFF program and is encouraged by the overall progress in strengthening macroeconomic stability and output growth. The mission reached staff-level understandings with the authorities on a Memorandum of Economic and Financial Policies which, upon management’s approval, will be considered by the IMF Executive Board in December to conclude the fourth and fifth reviews. Upon Board approval, SDR 720 million (about US$1.1 billion) will be made available to Pakistan.

“Economic indicators are improving, with growth expected to reach 4.3 percent in fiscal year (FY) 2014/2015, inflation on a downward trajectory, and credit to the private sector expanding at a robust pace. The external current account deficit was somewhat higher than expected over the past two quarters, with lower goods exports and higher imports partially compensated by strong remittances performance. The rapid build-up of gross reserves which rose from US$5.4 billion at the end of March to US$9.1 billion by the end of June 2014 stalled thereafter due to delays in divestment and sukuk transactions and the effects of political uncertainty on capital flows. However, going forward reserves are expected to surpass 3-months of imports by the end of FY 2014/2015.

“Despite some difficulties, the authorities’ reform program remains broadly on track, with the government and SBP meeting most quantitative performance criteria for end of June and end of September 2014.¹ The authorities are committed to taking the necessary corrective actions for missed targets, and with these actions, they will be on-track to meet their objectives for end-December.

“The mission was pleased that the government met the indicative targets on social transfers to the poor under the Benazir Income Support Program (BISP). Staff welcomed the government’s efforts to expand support to the poor through the BISP to 4.8 million eligible families by the end of this year.

“The mission was encouraged by the strong fiscal performance achieved during FY 2013/2014, and by the authorities’ determination to further lower the deficit to 4.8 percent of GDP in the current fiscal year. Progress is being made in broadening the tax base by eliminating tax concessions and exemptions granted through Statutory Regulatory Orders (SROs), strengthening anti-money laundering legislation, and implementing tax administration reforms to enhance compliance and enforcement. However, continued efforts are needed to improve the tax-to-GDP ratio and create resources to finance much-needed spending on investment and social development, while making the taxation system more efficient, transparent and equitable.

“The SBP remains committed to a prudent monetary policy stance to assure attainment of its inflation and reserves accumulation objectives. While legislation to enhance the SBP autonomy is still in parliament, internal reforms are underway to enhance the central bank’s effectiveness. Banking sector performance remains strong due to improved earnings and solvency.

“The mission urged the authorities to deepen their structural reform agenda in order to improve Pakistan’s competitiveness in global markets. In the energy sector, declining world oil prices and the expected start of imports of liquefied natural gas provide an opportunity to improve energy supply and continue tariff reforms while containing price increases to consumers. High priority needs to be placed on enhancing governance and efficiency of energy firms, and in strengthening the capacity of regulatory bodies. The mission supports the government’s strategic private partnership agenda and encourages stronger reform efforts in improving the business climate.

“The mission thanks the authorities and technical staff for their cooperation and reaffirms the IMF’s support to the government’s efforts to implement their economic reform program."

¹ Performance criteria were missed on the target on Net Domestic Assets of the SBP (end-June and end-September) and on government borrowing from the central bank (end-June and end-September), as well as Net National Reserves (NIR, end-September).