IMF Executive Board Approves 3-Year, US$6.64 Billion Extended Arrangement for Pakistan

Press Release No. 13/322
September 4, 2013

The Executive Board of the International Monetary Fund (IMF) approved today a 3-year arrangement under the Extended Fund Facility (EFF) for Pakistan in an amount equivalent to SDR 4.393 billion (US$6.64 billion1, or 425 percent of Pakistan’s quota) to support the country’s economic reform program to promote inclusive growth. The Executive Board’s approval enables an initial disbursement by the IMF of an amount equivalent to SDR 360 million (about US$544.5 million), and the remaining amount will be evenly disbursed over the duration of the program, subject to the completion of quarterly reviews.

Despite the challenges it faces, Pakistan is a country with abundant potential, given its geographical location and its rich human and natural resources. The authorities’ program is expected to help the economy rebound, forstall a balance of payments crisis and rebuild reserves, reduce the fiscal deficit, and undertake comprehensive structural reforms to boost investment and growth. Adherence to the program is also expected to catalyze the mobilization of resources from other donors.

Following the Executive Board discussion on Pakistan, Ms. Nemat Shafik, Deputy Managing Director and Acting Chair, issued the following statement:

“Pakistan is facing serious economic challenges. Overall vulnerabilities and crisis risks are high, with subpar growth and unsustainable fiscal and balance of payments positions. In this context, the authorities’ comprehensive economic program is timely and welcome.

“The authorities’ 2013/14 federal budget represents an important initial step towards the needed fiscal consolidation. However, to ensure medium-term fiscal sustainability and create fiscal space for social and investment spending, it is important to raise the tax-to-GDP ratio, including by broadening the tax base through a reduction in exemptions and concessions and extending taxation to areas currently not fully covered by the tax net. An overhaul of tax administration is also required, and provinces should contribute fully to the adjustment effort.

“Monetary and exchange rate policies should be geared to rebuilding external buffers, direct lending to the government should cease and efforts to improve independence of monetary policy need to be stepped up to pave the way for improved price stability. Risks to the banking sector are manageable, although the undercapitalization of vulnerable banks needs to be addressed.

“To achieve sustained and inclusive growth, short-term macroeconomic measures must be complemented by significant structural and governance reforms. The recently announced energy policy will address the long-standing problems in the sector, which constitute the most crucial constraint on growth and have generated large fiscal costs. In addition, the trade regime needs to be liberalized, public sector enterprises need to be restructured or privatized, and the business climate needs to be improved.

“Protecting the most vulnerable from the direct and indirect impacts of fiscal consolidation and price adjustments is a priority. Coverage and benefits of these programs should be expanded as savings from tariff adjustments and fiscal space are realized.”


Recent Developments

Pakistan’s growth trajectory has borne the tolls of both internal security and macroeconomic imbalances, as well as an uncertain global and regional environment. These factors, along with the country’s longstanding structural problems, mainly in the energy sector, have kept growth below the level needed to reduce poverty and absorb the growing labor force. Power outages, resulting from many years of financial and governance problems and averaging about 8-10 hours a day, together with devastating floods and a difficult security situation have contributed to the anemic growth. GDP growth has averaged only 3 percent over the past five years. Private domestic investment has dropped from 14 percent of GDP in 2007/08 to around 11 percent of GDP in 2012/13 due to a difficult business climate. With capital flows virtually drying up, central bank reserves have declined to critical levels, falling by some 45 percent in the past year alone. As of end June 2013, reserves stood at US$6 billion. Much effort is needed to boost confidence in order to attract foreign direct investment in line with Pakistan’s long-term growth potential.

Program Summary

The authorities have put in place an ambitious economic reform program aimed at reversing the current large fiscal deficits, fostering inclusive growth and addressing Pakistan’s short and medium term problems. They have already implemented key measures to ensure a strong start, including fiscal consolidation measures totaling 2 percent of GDP, adjusting electricity tariffs as part of a new comprehensive energy policy, reorienting monetary policy to rebuild foreign exchange reserves, in addition to reducing inflation, and launching a decisive tax enforcement program. These measures are expected to reduce the government budget deficit to sustainable levels, reduce crowding-out of private investment, , and containing inflation over the medium-term.

Medium-term elements of the program:

• Raising growth gradually to near 5 percent by 2015/16 as macroeconomic stability is entrenched and structural reforms are pursued.

• Bringing inflation down to 6-7 percent range by 2015/16, from the current level of 8.3 percent.

• Increasing central bank reserves to over 3 ½ months of imports by 2015/16.

• Reducing the fiscal deficit to 3 ½ percent of GDP by 2015/16 from an estimated 8.0 percent in 2012/13, with provincial governments contributing their fair share of the fiscal consolidation process.

• Liberalizing the trade regime and reforming public sector enterprises through restructuring and/or privatization.

• Improving the business climate.

• Strengthening the tax system.

• Protecting the most vulnerable from the direct and indirect impacts of reform measures.

Pakistan: Selected Economic Indicators, 2009/10–2013/14 1/  

Population: 178.9 million (2011/12)

Per capita GDP: US$1,228 (2011/12)

Poverty rate: 17.2 percent (2007/08)

Main exports: Textiles ($9.9 billion)

          Estimates   Baseline   Program
  2009/10 2010/11 2011/12   2012/13   2013/14
  (Annual percentage change)

Output and prices


Real GDP at factor cost

2.6 3.7 4.4   3.6   3.3   2.5

GDP deflator at factor cost

10.7 19.5 5.3   7.5   7.9   7.9

Consumer prices (period average) 2/

10.1 13.7 11.0   7.4   8.2   7.9

Consumer prices (end of period) 2/

11.8 13.3 11.3   5.9   10.5   10.0

Pakistani rupees per U.S. dollar (period average)

7.6 2.2 4.1   8.7    
  (In percent of GDP)

Saving and investment


Gross saving

13.6 14.2 12.9   13.3   12.5   14.3


-2.4 -4.2 -5.1   -5.2   -4.5   -2.2

Nongovernment (including public sector enterprises)

16.0 18.4 17.9   18.4   16.9   16.5

Gross capital formation 3/

15.8 14.1 14.9   14.2   14.1   14.9


3.5 2.5 3.3   3.3   3.3   3.3

Nongovernment (including public sector enterprises)

12.3 11.6 11.6   10.9   10.8   11.6

Public finances


Revenue and grants

14.3 12.6 13.1   13.1   13.0   14.4

Expenditure (including statistical discrepancy)

20.2 19.5 21.5   21.0   20.8   19.9

Budget balance (including grants)

-5.9 -6.9 -8.4   -7.9   -7.8   -5.5

Budget balance (excluding grants)

-6.2 -7.1 -8.8   -8.0   -8.1   -5.8

Primary balance

-1.6 -2.9 -4.0   -3.6   -3.0   -0.9

Total general government debt 4/

61.5 59.5 63.8   66.6   69.2   66.6

External general government debt

30.2 26.6 25.8   24.1   23.2   24.1

Domestic general government debt

31.3 32.9 38.0   42.5   46.1   42.5
  (Annual changes in percent of initial stock of broad money, unless otherwise indicated)

Monetary sector


Net foreign assets

0.5 4.1 -3.8   -3.4   -0.7   3.9

Net domestic assets

11.9 11.8 17.9   19.3   18.4   12.2

Broad money (percent change)

12.5 15.9 14.1   15.9   17.7   13.8

Reserve money (percent change)

11.4 17.1 11.3   15.9   14.2   13.4

Private credit (percent change)

3.9 4.0 7.5   -0.6   8.0   8.5

Six-month treasury bill rate (period average, in percent)

12.3 13.3 12.3   10.1    

External sector


Merchandise exports, U.S. dollars (percentage change)

2.9 28.9 -2.6   0.2   9.6   11.4

Merchandise imports, U.S. dollars (percentage change)

-1.7 14.9 12.8   -1.6   7.3   6.9

Current account balance (in percent of GDP)

-2.2 0.1 -2.1   -1.0   -1.6   -0.6
  (In percent of exports of goods and services, unless otherwise indicated)

External public and publicly guaranteed debt

178.5 153.4 160.3   157.3   147.8   143.7

Debt service

21.5 13.0 16.0   20.6   22.5   19.4

Gross reserves (in millions of U.S. dollars) 5/

12,958 14,784 10,799   6,008   2,283   9,566

In months of next year's imports of goods and services

3.6 3.6 2.7   1.4   0.5   2.2

Memorandum items:


Real effective exchange rate (annual average, percentage change)

0.9 6.1 2.7   -6.2   -4.8   -7.7

Terms of trade (percentage change)

1.8 7.0 -9.6   -0.4   1.0   -0.1

Real per capita GDP (percentage change)

0.5 1.5 2.3   1.5   1.3   0.5

GDP at market prices (in billions of Pakistani rupees)

14,867 18,285 20,091   22,909   25,415   25,351

GDP at market prices (in billions of U.S. dollars)

177.6 213.7 225.6   236.5   235.6   229.9

Sources: Pakistani authorities; and IMF staff estimates and projections.

1/ Fiscal year ends June 30.

2/ Inflation after 2009/10 based on new CPI weights, recalculated in September 2011

3/ Including changes in inventories. Investment data recorded by the Pakistan Bureau of Statistics are said to underreport true activity.

4/ Excludes military debt, and commercial loans.

5/ Excluding gold and foreign currency deposits of commercial banks held with the State Bank of Pakistan.

1 Please note changes in US Dollar amounts adjusted to today’s exchange rate.


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