Statement by an IMF Staff Mission on Pakistan

Press Release No. 10/43
February 16, 2009

An International Monetary Fund (IMF) staff mission, led by Adnan Mazarei, met with the Pakistani authorities in Dubai over the past week to initiate discussions on the fourth review under Pakistan’s Stand-By Arrangement (SBA).

At the conclusion of its work today, the mission issued the following statement:

“The IMF mission held constructive discussions with government and State Bank officials, focusing on Pakistan’s recent economic performance, the outlook for the rest of the fiscal year 2009/10,1 and policies to consolidate macroeconomic stability and further structural reforms. The mission welcomed the efforts being made by the authorities to implement their economic program to stabilize the economy and advance structural reform against the background of significant security challenges and continued delays in donor disbursement of pledged financial aid.

“Pakistan’s program is progressing well. All quantitative performance criteria for end-December 2009 were observed, except for the budget deficit target, which was exceeded by a small margin. The exchange rate has remained stable at Rs. 84–85 per U.S. dollar and the international reserves position has strengthened (the banking system’s gross foreign exchange reserves, including the State Bank and commercial banks, reached US$14.3 billion in mid-February, of this total the State Bank held US$10.5 billion).

“The early signs of recovery in some sectors and the improved external position are encouraging, although there are risks and challenges to Pakistan’s economic program. Economic growth in Pakistan is starting to recover; large-scale manufacturing output has started to increase, the improvement in the global economy has helped manufacturing exports, and private sector credit growth has picked up somewhat as businesses rebuild their working capital. Looking ahead, a resumption of higher growth is needed to raise living standards and will require improvements in the business climate to stimulate higher investment by local and foreign investors. However, the growth outlook is subject to risks: most prominently the domestic security situation and reliability of electricity supply, as well as the pace of global economic recovery. Further, the widening of military operations, revenue shortfalls and delays in disbursements of pledged donor support have complicated fiscal management, and inflation has picked up.

“Discussions focused on the fiscal program and the monetary policy stance. On the fiscal side, shortfalls in budget revenue and expenditure pressures, if any, shall be met through adjustments in expenditure and additional revenue measures, if necessary, to assure the achievement of the program’s fiscal targets for 2009/10.

“Monetary policy will continue to focus primarily on price stability, while building international reserves. Inflation has been more persistent than expected, due to higher administered prices and higher inflationary expectations. The State Bank will monitor inflation carefully and if inflationary pressures persist, monetary policy will be tightened, as needed.

“Structural reforms are progressing. The amendments to the State Bank of Pakistan Act have been submitted; tax administration reforms are continuing; the amendments to the Banking Companies Ordinance have been approved by the National Assembly; and electricity reform has proceeded, albeit slower than planned. Slow electricity reform is a drag on growth as it undermines the reliability of the electricity supply. The authorities reaffirmed their commitment to the introduction of the VAT by July 1, 2010 and the draft VAT law will be soon submitted to parliament and provincial assemblies.

“Social protection is a key element of the program. The roll out of the Benazir Income Support Program has been slow. The pilot for introducing the new targeting mechanism, using a poverty scorecard, has been completed in 15 districts and covering 2.1 million people. A comprehensive plan for nationwide rollout of the poverty scorecard based targeting has been prepared with the help of the World Bank and the rollout is expected to be completed by end-March 2011.

“The resolve of the Pakistani authorities to implement their stabilization and reform program is a key factor in deepening macroeconomic stabilization, despite the risks associated with internal security and uncertainty as to the pace of global economic recovery. Early disbursement of donor financing remains crucial to support Pakistan’s stabilization and reform efforts and laying the basis for a high and sustainable growth.

“The IMF mission staff will prepare a report on the fourth review under Pakistan's SBA that is scheduled for consideration by the IMF Executive Board in late March.”

The SBA of SDR 5.17 billion was approved by the Executive Board of the IMF on November 24, 2008 (see Press Release No. 08/303). On August 7, 2009, the SBA was augmented to SDR 7.24 billion and extended through end-2010. A first disbursement of SDR 2.067 billion was made on November 26, 2008 and a second one of SDR 568.5 million on April 1, 2009, after completion of the first program review (see Press Release No. 09/100). The third disbursement of SDR 766.7 million was made on August 7, 2009, after completion of the second program review (see Press Release 09/281). The fourth disbursement of SDR 766.7 million was made on December 23, 2009, after completion of the third program review. Total disbursements thus far amount to SDR 4.17 billion.


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



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