Press Release No. 14/312

Press Release: IMF Executive Board Completes Third Review Under the Extended Fund Facility Arrangement for Pakistan and Approves US$555.9 Million Disbursement

June 27, 2014

The Executive Board of the International Monetary Fund (IMF) today completed the third 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$555.9 million).

On September 4, 2013, the Executive Board approved the 36-month extended arrangement under the EFF in the amount of SDR 4.393 billion (about US$6.78 billion, or 425 percent of Pakistan’s quota at the IMF) (See Press Release No. 13/322).

In completing the third review, the Board also approved the authorities’ request for a waiver of non-observance of the end-March performance criterion on the ceiling of the net domestic assets of the State Bank of Pakistan, as well as modifications to adjust the end-June performance criterion on the net international reserves target and the end-June fiscal deficit target.

Following the Executive Board’s discussion on Pakistan, Mr. David Lipton, First Deputy Managing Director and Acting Chair, said:

“Macroeconomic conditions are improving, but downside risks remain. The government has taken measures to address short-term macroeconomic vulnerabilities and advance structural reforms, including the energy sector reform, but continued efforts to safeguard the fragile economic recovery are needed.

“Fiscal consolidation remains broadly on track, but efforts to broaden the tax base and increase tax-to-GDP ratio should be accelerated. Eliminating tax concessions and exemptions will not only improve tax collections, but will also produce a fairer and simpler tax system and will improve the investment climate. Increasing the size and coverage of targeted cash transfers to protect the most vulnerable segments of the population is welcome.

“Efforts to boost foreign reserves are bearing fruit and should continue, including through spot purchases, greater exchange rate flexibility, and a prudent monetary policy. The policy interest rate should be set so as to bring inflation down over time. Revised legislation to enhance central bank independence will be an important component of improved monetary policy framework, complemented by greater transparency in monetary policy decision making and enhanced central bank internal controls.

“The banking sector remains financially stable and profitable. This stability will be further enhanced by ensuring compliance of the few banks that fall below minimum capital adequacy requirements, addressing the high level of non-performing loans (NPLs), and improving the Anti-Money Laundering/Combating the Fighting Terrorism (AML/CFT) regime.

“Continued energy policy reforms are welcome. Addressing the administrative constraints on the power sector’s regulatory framework and improving the operations and collections of energy companies are important. Efforts to reform public sector enterprises should continue. Plans for trade policy and business climate reforms are being developed, but firmer actions are needed to boost economic growth over time.”