Press Release No. 13/249

Press Release: IMF Mission and Government of Pakistan Reach a Staff-level Agreement on EFF-Supported Program

July 4, 2013

An International Monetary Fund (IMF) mission, led by Mr. Jeffrey Franks, visited Pakistan from June 19 to July 2, 2013 to conduct the annual Article IV consultation discussions and to hold policy discussions with the authorities about possible IMF financial support for the government’s reform program under a three-year Extended Fund Facility (EFF).

At the conclusion of its work today, Mr. Franks issued the following statement:

“The mission has reached a staff-level agreement with the authorities on the key elements of an economic reform program that is strongly owned by the authorities and that can be supported by a 36-month arrangement totaling some US$5.3 billion under the EFF. This agreement will be reviewed by IMF Management and finalized before going to the IMF’s Executive Board, which would consider the proposed arrangement in early September 2013, subject to the timely completion of prior actions to be taken by the authorities.

“Pakistan faces a challenging economic outlook, compounded by an uncertain global and regional environment. Macroeconomic imbalances have combined with longstanding structural problems, particularly in the energy sector, to sap the country’s growth potential. Growth has only averaged 3 percent over the past few years, well below that needed to provide jobs for the rising labor force and to reduce poverty. Technical and financial problems in the energy sector have led to large-scale power outages which have depressed output and imposed hardship on the public at large. A difficult business climate has contributed to a sharp fall in private investment. Weak performance in large public enterprises in key industries constitutes a drag on the public finances and on economic growth. Falling capital inflows have been insufficient to finance even a modest current account deficit, leading to large reduction in international reserves.

“A determined effort is required to improve medium-term growth and move toward sustainable fiscal and external positions. This requires a strong political consensus, in the central government as well as in the provincial governments, on a medium-term program of fiscal consolidation anchored on an efficient and equitable tax system. The 2013/14 budget recently approved by parliament is an important step in the right direction, and the government has agreed to complement this with additional steps to achieve a substantial deficit reduction at the beginning of the program. The mission and the authorities agreed on the need for a sustained improvement in tax collections as well as a significant widening of the tax base and a more equitably shared tax burden, including through a phase-out of all existing statutory regulatory orders (SROs) and other measures which grant special rates and tax exemptions. On the expenditure side, untargeted subsidies that disproportionately benefit the well-off will be phased-out, while fully protecting the most vulnerable members of society through targeted assistance.

“The authorities’ program includes a comprehensive strategy for tackling the country’s long standing energy problems through measures to address the ‘circular debt’ accumulated in the sector, tariff rationalization, and promotion of investment for energy generation and modernization. Such steps would help to mitigate the hardship of electricity load-shedding, improve the fiscal balance, and help boost growth. Energy reforms are complemented by significant structural reforms in the areas of trade, public sector enterprises, and the business climate to encourage higher investment. Restructuring and privatization of public enterprises—including those in the energy sector—are intended to help restore fiscal stability as well as boosting investor confidence in Pakistan’s future economic prospects and opportunities, leading to higher growth and job creation.

“Broad-based domestic and international support will be crucial for the successful implementation of of the authorities’ planned policies and reforms. The IMF remains commited to supporting Pakistan and its people face up to the challenges by providing financial resources and technical assistance.”