Pakistan: Third Review Under the Extended Arrangement and Request for Waiver of Nonobservance of Performance Criterion, and Request for Modification of Performance Criteria-Staff Report; Press Release; and Statement by the Executive Director for Pakistan

Publication Date: July 07, 2014
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Summary: EXECUTIVE SUMMARY Extended Arrangement under the Extended Fund Facility (EFF): A 36 month, SDR 4,393 million (425 percent of quota) Extended Arrangement under the Extended Fund Facility was approved by the Executive Board on September 4, 2013 and the second review was concluded on March 24, 2014, with a total of SDR 1,080 million disbursed. A fourth tranche of SDR 360 million will be available upon the completion of this review. Status of the program: Program performance has been mostly positive, with all performance criteria for end-March met except the ceiling on Net Domestic Assets (NDA) of the State Bank of Pakistan (SBP), which was missed by a small margin. Since end-March 2014, the SBP has taken actions to address this shortcoming and is on track to meet the end-June target. The indicative target on social transfer payments was also met. The progress on fiscal and structural reform has been generally satisfactory. Of three structural benchmarks for this review, two were fully met, and the third was partially completed. The authorities completed three prior actions: (i) They sent to parliament a FY2014/15 budget proposal consistent with program objectives that will bring the fiscal deficit to 4.8 percent of GDP; (ii) They prepared a detailed plan to eliminate tax exemptions and concessions granted through Statutory Regulatory Orders (SROs) and converting the remainder into regular legislation over three years; and (iii) They finalized the determination and notification of electricity tariffs for FY2013/14. Four new structural benchmarks are proposed for inclusion at this review. Key issues: Discussions focused on progress in addressing the main macroeconomic challenges facing the country and efforts to advance the structural reform agenda. Particular attention was given to: (i) agreement on the principal measures for further fiscal consolidation in the FY2014/15 budget consistent with program targets; (ii) measures to enhance tax revenues by broadening the tax net and improving tax administration; (iii) challenges on the balance of payments and efforts to address external vulnerabilities and boost reserves; (iv) ongoing steps to safeguard financial stability; (v) measures to protect the most vulnerable; and (vi) further structural reforms to unlock Pakistan’s medium- term growth potential. The mission raised its growth forecast slightly. Risks to the outlook are easing, but remain tilted to the downside. Security concerns remain a critical risk factor. Delays and slippages in implementing key policy reforms could damage growth prospects and ultimately undermine macroeconomic stabilization. Pressures on the balance of payments have been ameliorated, but downward risks remain. Mission discussions were held offsite, but with COM’s assistance, the mission chief conducted a joint press conference, along with several outreach events with press, parliamentarians, donors, and university students in Islamabad. Two outreach events were also held in London.
Series: Country Report No. 14/184
Subject(s): Extended arrangement reviews | Extended Fund Facility | Performance criteria waivers | Performance criteria modifications | Economic conditions | Fiscal policy | Monetary policy | Exchange rate policy | Economic indicators | Tax policy | Bank capital | Bank regulations | Economic reforms | Budget estimates | Press releases | Pakistan

Publication Date: July 07, 2014
ISBN/ISSN: 9781498313292/1934-7685 Format: Paper
Stock No: 1PAKEA2014003 Pages: 84
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