Press Release No. 11/184

Press Release: Statement by an IMF Staff Mission on Pakistan

May 17, 2011

An International Monetary Fund (IMF) staff mission, led by Mr. Adnan Mazarei, met with the Pakistani authorities in Dubai over the past week. At the conclusion of its work today, the mission issued the following statement:

“Over the past few days, the Pakistani authorities and an IMF mission held constructive discussions on Pakistan’s stabilization program, focusing on macroeconomic policies for the rest of Fiscal Year 2010/11¹ and the 2011/12 budget. The authorities expressed their strong resolve to pursue prudent macroeconomic policies and enhance Pakistan’s medium-term growth prospects.

“Pakistan’s economy faces important challenges. Economic growth has been negatively affected by the floods and the high price of oil, inflation remains persistently high, and budgetary problems are undermining macroeconomic stability. Measures to improve confidence in the context of the authorities’ economic stabilization and reform agenda, while protecting the poor, were discussed. The mission welcomed the recent strengthening of the external position and some of the tax measures announced in March, which represent an important milestone. Discussions centered on measures to reduce the budget deficit in 2011/12 as well as quasi-fiscal operations (for example, the procurement of agricultural commodities) to reduce inflation, assure fiscal sustainability, and protect the external position. Reducing the budget deficit will require higher revenue through tax reform to broaden the tax base, including steps to implement reforms in the general sales tax. Measures to reduce spending on general subsidies in the energy sector have begun to be implemented. The quality of expenditure could be improved by increasing the share of spending on health, education, and infrastructure. Continued efforts are needed to reduce the budget deficit to take the pressure off monetary policy and create space for more credit to the private sector. In addition, as government debt has increased, debt management needs to be improved. Moreover, careful monitoring of the financial sector is needed to assure continuing financial stability.

“The IMF remains committed to the ongoing dialogue with Pakistan and discussions will continue in the weeks ahead and a mission is planned for July 2011.”

¹ Pakistan’s financial year runs from July 1 to June 30.