An IMF mission led by Mr. Zubair Iqbal, Assistant Director in the Middle Eastern and Central Asia Department, today concluded its discussions with the Pakistani authorities for the eighth —and penultimate— review of Pakistan's economic reform program under the Poverty Reduction and Growth Facility (PRGF) that was approved in December 2001. Two-thirds of the total of SDR 1.034 billion (about US$1.5 billion) under the PRGF loan has been disbursed so far.

Pakistan's overall macroeconomic performance remains favorable: for the fiscal year 2003/04, growth is now expected to exceed the 5.3 percent earlier targeted and to reach about 5.8 percent; inflation remains under control despite some upward pressure on food prices in recent months; and the external position continues to be strong. Implementation of the 2003/04 budget is on track. Monetary policy has been slightly tightened in recent weeks to address inflation risks. Further progress was made in implementing structural reform measures, albeit with some delays. Pakistan' s debt situation continues to improve towards sustainable levels.

Broad agreement was reached on the authorities' economic and financial policies for the remainder of this fiscal year and 2004/05. Building on the current momentum, and assuming that the exogenous factors remain favorable, growth next fiscal year could reach 6 percent, while inflation will be contained to no more than 5 percent. This will be supported by a prudent fiscal policy consistent with the authorities' objectives in their Poverty Reduction Strategy Paper (PRSP). The fiscal space for a further increase in social and poverty related expenditures will be enhanced by a planned reduction in subsidies to state-owned enterprises, as continued reforms in the sector is expected to lead to a further improvement in their financial position. Should inflationary pressures increase, monetary policy will be further tightened.

The mission supported the authorities' intentions to continue structural reforms of the fiscal system (in tax administration, public expenditure management and transparency). It welcomes the authorities' initiatives to better monitor and understand the developments in social and welfare indicators through timely surveys, and to increase the effectiveness of social and poverty related expenditures. In the financial sector, it concurred with the authorities' intentions to promote the development of savings institutions on a market basis, including the eventual transformation of the NSS into a modern savings institution, probably in the form of a mutual fund.

The mission supported the authorities' plans to further reform the power sector. The strategy which they have outlined is comprehensive, based on sound principles, and introduces greater transparency with regard to the remaining government interventions based on social considerations. The mission urged the authorities to implement this strategy as soon as possible. The mission also supported the authorities' intention to continue with their ambitious privatization program in the energy, industrial, financial, and transport sectors.

Based on Pakistan's economic performance, and the authorities' policy commitments, the mission will recommend completion of the review by the Executive Board. A Board meeting on Pakistan could take place in late June 2004. Upon completion of the review, Pakistan would become eligible to draw another SDR 172.3 million (about US$ 253 million) under the PRGF.