Press Release: IMF Approves Combined ESAF/EFF Financing for Pakistan

October 20, 1997

The International Monetary Fund (IMF) today approved a three-year financing package for Pakistan equivalent to SDR 1,137.3 million (about US$1,558 million) in support of its medium-term adjustment and reform program. Of this amount, SDR 682.4 million (about US$935 million) is available under the Enhanced Structural Adjustment Facility (ESAF)1, and SDR 454.9 million (about US$623 million) under the Extended Fund Facility (EFF)2. Of the total, SDR 151.6 million (about US$208 million) is available immediately.


In recent years, attempts by the authorities to address Pakistan’s macroeconomic imbalances and deep-rooted structural problems were frustrated by slippages in policy implementation. This has impacted adversely on growth, inflation, and the balance of payments. Over the past several months, however, the government has taken important measures to arrest the deterioration in financial and macroeconomic balances and initiated structural reforms aimed at opening up the economy and raising its efficiency. These policies have contributed to a moderation in inflation, narrowing of the trade deficit, and improvement in Pakistan's external reserve position. On the structural front, significant progress has been achieved in the areas of fiscal federalism, taxation, and financial sector reform.

Medium-Term Strategy and the 1997/98 Program

The macroeconomic objectives for the three-year program period (1997/98-1999/2000) are: (i) to raise the average annual growth rate of real GDP growth to the 5-6 percent range (from 3.1 percent in 1996/97); (ii) to progressively reduce annual inflation to about 7 percent (from 11.8 percent in 1996/97); and (iii) to reduce the external current account deficit (excluding official transfers) to the range of 4.0-4.5 percent of GDP (from 6.4 percent in 1996/97) with a view to substantially strengthen the external reserve position. The policy actions in the key fiscal area are designed to cut the overall budget deficit to 4.0 percent of GDP by the third year of the program (from 6.1 percent of GDP in 1996/97), which would contribute importantly to an increase in national savings—from about 12 percent of GDP in 1996/97 to about 15 percent of GDP in 1999/2000.

In line with the medium-term strategy, the program for 1997/98 seeks to raise the growth rate of real GDP to 5.5 percent; reduce the year-on-year inflation to 10.5 percent; and bring down the external current account deficit to 5.1 percent of GDP. To achieve these objectives, the budget deficit will be contained to 5.0 percent of GDP. The credit needs of the productive sectors will be met and the competitiveness of the tradeable goods sector will be enhanced.

Structural Policies

The government’s strategy is to rationalize further the public sector, shifting more of the primary productive role to the private sector, and to strengthen local institutional capacity. In the public sector, the domestic tax base will be broadened; tax administration strengthened; government expenditure shifted towards the social services and human capital formation; and key public enterprises restructured. The privatization program will encompass industrial units and important public assets in the transportation, power and gas, and telecommunications sectors. As regards the financial system, the government has embarked on a far-reaching program to enhance the authority and the ability of the State Bank of Pakistan to regulate and supervise banks; improve the legal and judiciary process for enforcing financial contracts; privatize the state-owned banks and financial institutions; and develop the capital market. In the external sector, the interbank foreign exchange market will be deepened and exchange rate policy will be increasingly guided by market developments.

The authorities’ recent actions aimed at improving governance are timely, as shortcomings in this area have hampered macroeconomic performance through their detrimental impact on the loan portfolio of the banking system, tax collection, the effectiveness of public expenditure, and performance of public enterprises. Looking ahead, the government plans to enhance law and order, promote transparent and competitive procurement practices, and improve the efficiency of the civil service.

Social and Environmental Policies

Public expenditure on the social sectors is projected to rise significantly during the program period. This reflects an emphasis on ensuring adequate quality of basic services and maximum efficiency of budgetary allocations. The program emphasizes improvements in the areas of education, health care, population welfare, and family planning. Concurrently, a multifaceted strategy will be undertaken by the government to minimize potential social costs of reforms in the short run and to strengthen the social safety net. To address environmental concerns, the following steps will be taken over the program period: enactment of the Environmental Protection Law; development of provincial capabilities for enforcement, including development of systems for enforcing pollution controls and assessing pollution’s environmental impact; and implementation of popular environmental awareness programs.

The Challenge Ahead

For sustained economic recovery to take hold, the authorities will need to maintain a tight grip on government expenditures, to ensure the success of the fundamental reform of the tax administration machinery, and to proceed steadily with expanding the net of the general sales tax and of the agricultural income tax. Other challenges are to ensure steady and nonreversible progress in public sector and civil service reforms, to restore the soundness of the banking system, and, through the consistent implementation of these policies, to regain credibility and market confidence.

Pakistan joined the IMF on July 11, 1950. Its quota3 is SDR 758.2 million (about US$1,039 million). Pakistan’s outstanding use of IMF financing currently totals SDR 871 million (about US$1,193 million).

Pakistan: Selected Economic Indicators






(Percent change)

Real GDP growth






Consumer price index (annual average)






(Percent of GDP)

Overall fiscal balance (deficit-)






External current account balance, excluding official transfers (deficit-)






(Weeks of imports)

Gross international reserves






Sources: Pakistan authorities; and IMF staff estimates.

* Preliminary.

** Program.

1 The ESAF is a concessional IMF facility for assisting eligible members that are undertaking economic reform programs to strengthen their balance of payments and improve their growth prospects. ESAF loans carry an interest rate of 0.5 percent a year and are repayable over 10 years with a 5½-year grace period.

2 The EFF is an IMF financing facility that supports medium-term programs that seek to overcome balance of payments difficulties stemming from macroeconomic imbalances and structural problems. The repayment terms are 10 years with a 4½-year grace period, and the interest rate, adjusted weekly, is currently about 4.2 percent.

3 A member’s quota in the IMF determines, in particular, the amount of its subscription, its voting weight, its access to IMF financing, and its share of the allocation of SDRs.


Public Affairs    Media Relations
E-mail: E-mail:
Fax: 202-623-6278 Phone: 202-623-7100