Pakistan Sixth Review under the Extended Arrangement and Modification of Performance Criteria



Extended Arrangement under the Extended Fund Facility (EFF): A 36 month, SDR 4,393 million (425 percent of quota) Extended Arrangement under the EFF was approved by the Executive Board on September 4, 2013 and the fourth and fifth reviews were completed on December 17, 2014, for a total disbursement of SDR 2,160 million. The sixth tranche amounting to SDR 360 million will be available upon the completion of this review.

Status of the programme: All end-December 2014 quantitative performance criteria (PCs) were observed, as well as the indicative target on cash transfers under the Benazir Income Support Programme (BISP). Although the indicative target on federal tax revenues was missed, the authorities have taken actions to address the shortfall and are on track to meet the end-March 2015 indicative target. The end-December 2014 structural benchmark (SB) on amendments to the relevant tax laws and submission of the Anti-Money Laundering Act (AMLA) was met, as were the end-February SBs on enhancing internal operations and risk management of the State Bank of Pakistan (SBP) and improving monetary policy operations. Adjustments to the end-March PCs on NIR and NDA are proposed to reflect higher reserves accumulation by the SBP and new endJune PCs and four new SBs are proposed.

Key issues: Discussions focused on: (i) saving the windfall from falling oil prices to strengthen buffers―including foreign exchange reserves and the fiscal stance―against adverse shocks; (ii) preventing a further loss of export competitiveness; (iii) reducing electricity subsidies; (iv) introducing compensatory measures to cover the revenue shortfall; (v) steps to broaden the tax base and improve tax administration; (vi) progress on safeguarding financial stability and expanding credit growth; (vii) enhancing structural reforms in the energy sector, central bank independence, anti-money laundering framework, public debt management, trade, and the business climate to unlock Pakistan’s long-term growth potential. The mission retained its growth projection at 4.3 percent, but lowered inflation forecast to 5.5 percent for FY2014/15. Risks are balanced with downside risks due to political uncertainties and security challenges, and upside risks from further falls in oil prices.

IMF Executive Board Completes Sixth Review Under the EFF for Pakistan
Press Release No. 15/146
March 27, 2015

The Executive Board of the International Monetary Fund (IMF) today completed the sixth review of Pakistan’s economic performance under a 36-month program supported by an Extended Fund Facility (EFF) arrangement. The Board’s decision enables the immediate disbursement of an amount equivalent to SDR 360 million (about $501.4 million), bringing total disbursements under the arrangement to SDR 2.52 billion (about $3.5 billion).

On September 4, 2013, the Executive Board approved the three-year extended arrangement under the EFF in the amount of SDR 4.393 billion (about US$6.12 billion, or 425 percent of Pakistan’s quota at the IMF). (See Press Release No. 13/322).

At the conclusion of the Executive Board’s discussion, Mr. Mitsuhiro Furusawa, Acting Chair and Deputy Managing Director, issued the following statement:

“The authorities’ strong performance under Pakistan’s Fund-supported programme is to be commended. Progress has been made in restoring economic stability, improving growth prospects, and reducing crisis risks. It will be important to build on these gains and continue determined efforts to implement the reform agenda to achieve economic transformation and higher sustainable growth.

“Fiscal consolidation is underway through efforts to broaden the tax base and reduce costly and inefficient electricity subsidies. Scope remains to increase tax compliance and enforcement and further reduce energy subsidies, while continuing to protect the most vulnerable. Enhanced public debt management remains a priority, together with further efforts to diversify fiscal financing and reduce reliance on central bank borrowing.

“Monetary policy remains prudent and foreign exchange reserves are increasing. However, legislation to enhance central bank independence remains crucial and should conform to international best practices. Efforts to improve central bank functioning should also continue, including through improved functioning of the interest rate corridor, effective open market operations, and strengthened risk management and internal operations.

“The financial sector remains stable and profitable and progress in bank capitalisation is satisfactory. Further reforms are needed to safeguard financial stability, and a number of legislative actions are underway in this regard. Commendable efforts to combat terrorism financing, money laundering, and tax offenses have been made and would need to be sustained.

“Structural reforms are progressing, albeit with some difficulties. While the power sector regulatory reform continues, progress in the gas sector has been uneven. Implementation of gas price rationalisation should help better allocate current supply and encourage new production. The current environment of lower oil prices provides an opportunity to speed-up electricity tariff rationalisation while continuing to improve the operations and collections of energy companies. The authorities remain committed to privatisation of public sector enterprises, as well as to trade policy and business climate reforms.”