Press Release No. 13/532

Press Release: IMF Executive Board Completes First Review Under the Extended Fund Facility Arrangement for Pakistan and Approves US$553.3 Million Disbursement

December 19, 2013

The Executive Board of the International Monetary Fund (IMF) today completed the first review of Pakistan’s economic performance under a three-year program supported by an arrangement under the Extended Fund Facility (EFF). The completion of the review enables an immediate disbursement of an amount equivalent to SDR 360 million (about US$553.3 million).

The 36-month EFF arrangement in the amount of SDR 4.393 billion (About US$6.75 billion, or 425 percent of Pakistan’s quota at the IMF) was approved by the Executive Board on September 4, 2013 (See Press Release No. 13/322).

In completing the first review, the Executive Board also approved the authorities’ request for a waiver of non-observance of the end-September 2013 performance criterion on net international reserves (NIR) based on corrective actions taken by the authorities.

Following the Executive Board’s discussion on Pakistan, Ms. Nemat Shafik, Deputy Managing Director and Acting Chair, said:

“The authorities’ performance under the Extended Fund Facility arrangement has been satisfactory. They have taken steps to address fiscal imbalances and structural issues in the energy sector. Nonetheless, overall vulnerabilities remain high, and it will be crucial to consolidate the fiscal adjustment, boost external buffers, and deepen structural reforms.

“A more ambitious approach is needed to improve tax administration and eliminate tax loopholes. The increase in electricity tariffs has reduced subsidies, but further efforts are needed to improve the energy sector’s efficiency. It will be important to protect the most vulnerable population by avoiding slippages in targeted cash transfers.

“The low level of international reserves needs to be rebuilt. The central bank should use the policy tools at its disposal to boost reserves through policy rate adjustment, reserves purchases, and greater exchange rate flexibility. The central bank will also need to address inflation once reserves begin to recover, for which greater central bank independence is essential.

“Policies to safeguard financial sector stability should continue, including addressing banks with capital below minimum requirements and with high nonperforming loans and monitoring banks’ holdings of government debt.

“The good start on structural reforms should be continued. It will be important to implement the authorities’ privatization plans for public sector enterprises. Improving the business climate and moving to a simpler and more transparent import tariff regime will also yield significant benefits.”