## cr17212

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**Canonical URL:** [cr17212](https://www.imf.org/-/media/files/publications/cr/2017/cr17212.pdf)

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### EXECUTIVE SUMMARY — Economic context and recent policy implementation
- Macroeconomic resilience was strengthened during the three-year Extended Fund Facility (EFF)-supported program completed in September 2016: growth increased, the fiscal deficit was reduced, and foreign currency reserves recovered.
- Structural reforms initiated during the program included addressing long-standing fiscal and energy sector constraints and strengthening social safety nets.
- Following program completion:
  - Policy implementation has weakened and macroeconomic vulnerabilities have begun to re-emerge: fiscal consolidation slowed, the current account deficit widened, and foreign exchange reserves declined.
  - On the structural front, accumulation of arrears in the power sector has resumed, financial losses of ailing public sector enterprises (PSEs) continue to weigh on scarce fiscal resources, and exports remain low.
  - Poverty and inequality remain significant; growth needs to become more inclusive.

### RECENT ECONOMIC AND FINANCIAL DEVELOPMENTS — Key statistics and trends
- Real GDP growth and inflation:
  - Real GDP growth is estimated at 5.3 percent in FY 2016/17.
  - Headline inflation reached 4.8 percent (y-o-y) in April 2017; core inflation inched up to 5.5 percent (y-o-y).
- External position and reserves:
  - International reserves declined to US$16.1 billion at end-April 2017 (3.4 months of imports) from US$18.1 billion in June 2016 (four months of imports).
  - The SBP's derivative position reached $3.6 billion in net obligations (from $2 billion in June 2016).
  - During the first three quarters of FY 2016/17, the current account deficit widened to 2 percent of GDP.
  - Exports dropped by 1 percent (y-o-y); imports rose 14 percent (y-o-y); remittances were -2 percent (y-o-y).
  - Real effective exchange rate appreciated 6 percent during the fiscal year (18 percent cumulatively over the past three years).
- Fiscal performance:
  - The overall fiscal deficit (excluding grants) was 3.8 percent of GDP in the first three quarters of FY 2016/17.
  - Tax revenues were 0.6 percent of GDP lower than expected; nontax revenues were 0.7 percent of GDP lower than anticipated.
- Financial sector and markets:
  - Bank private credit growth reached 14 percent (y-o-y) at end-March 2017.
  - Gross and net NPL ratios decreased to 10.1 percent and 1.6 percent, respectively (December 2016).
  - Capital adequacy ratio averaged 16.2 percent.
  - Two small banks remain undercapitalized but are expected to be brought into compliance by end-June 2017.
  - MSCI reclassified Pakistan from frontier to emerging market, effective June 2017.
- Social and labor outcomes:
  - Unemployment is at 5.9 percent (10½ percent among youth and 9½ percent among women).
  - Poverty remains high at about 30 percent in 2013 (9 percent based on the 2001 poverty line).

### MACROECONOMIC OUTLOOK AND RISKS
- Growth and inflation projections:
  - Real GDP growth is estimated at 5.3 percent in FY 2016/17 and is expected to strengthen to about 6 percent over the medium term.
  - Headline inflation likely to be contained at 4.3 percent on average in FY 2016/17.
- External financing and reserves projections:
  - The current account deficit is expected to widen to 3 percent of GDP in FY 2016/17.
  - Foreign reserves are projected to recover to $18.5 billion (3.8 months of imports; 73 percent of the IMF's reserve adequacy (ARA) metric) with FDI inflows and significant government external borrowing expected in the fourth quarter.
  - Over the medium term, the current account deficit is expected to peak at 3.4 percent of GDP in 2019.
  - External financing needs are projected to increase to nearly 7½percent of GDP over the medium term.
- Risk assessment (skewed to the downside) — external and domestic:
  - External risks include lower trading partner growth (notably China and GCC), tighter international financial conditions, faster rise in global oil prices, continued REER appreciation, and vulnerability of remittances (nearly two thirds originate from GCC countries).
  - Domestic risks include political polarization ahead of mid-2018 general elections and potential deterioration in security conditions.
  - An upside risk is a renewed decline in oil prices.

### POLICY FOCUS AND RECOMMENDATIONS — Overarching priorities
- Strengthen macroeconomic resilience and generate higher and more inclusive growth through:
  - Fiscal consolidation;
  - Prudent monetary and exchange rate policy;
  - Structural reforms (energy sector, PSEs, social protection, business climate, financial deepening and inclusion).
- Fiscal policy:
  - Continue gradual fiscal consolidation through the medium term to address debt-related vulnerabilities.
  - FY 2017/18 budget is subject to risks; reaching the deficit target will likely require significant additional revenue measures.
- Monetary and exchange rate policy:
  - Prudent monetary policy and greater exchange rate flexibility will be key to preserve low inflation and rebuild external buffers.
- Structural reforms to support inclusive growth:
  - Ensure a financially sound and growth-supporting energy sector.
  - Restructure and attract private sector participation in PSEs.
  - Bolster social protection.
  - Strengthen the business climate and governance.
  - Foster financial deepening and inclusion.
- Implementation status and follow-up:
  - Progress noted on revenue mobilization, SBP independence, financial sector stability, targeted cash transfers under BISP, and business climate reforms.
  - Recent resumption of circular debt accumulation in the energy sector and setbacks in restructuring PSEs underscore need for sustained reforms.

_Italic: IMF staff mission discussed these issues in Dubai during March 28–April 5, 2017; approved by Daniela Gressani and Vitaliy Kramarenko._

### RISK ASSESSMENT MATRIX — Major risks, likelihoods, impacts, and mitigating policies
- Retreat from cross-border integration:
  - Medium Term Likelihood: High
  - Expected Impact Upon Realization: Low to Medium
  - Policies to mitigate: build fiscal and external buffers; allow exchange rate flexibility; maintain medium-term debt strategy; ensure strong financial regulation.
- Structurally weak growth in key advanced and emerging economies (incl. GCC):
  - Medium Term Likelihood: High/Medium
  - Expected Impact: Medium
  - Policies to mitigate: build buffers; exchange rate flexibility; improve business climate; enhance governance.
- Significant slowdown in China:
  - Medium Term Likelihood: Low/Medium
  - Expected Impact: Medium
  - Policies to mitigate: build buffers; exchange rate flexibility; improve business climate; maintain debt strategy; strong financial supervision.
- Significant further strengthening of the U.S. dollar and/or higher rates:
  - Medium Term Likelihood: High
  - Expected Impact: Medium
  - Policies to mitigate: build external buffers; exchange rate flexibility; adequate debt strategy; strong supervision.
- Security conditions:
  - Medium Term Likelihood: Medium to High
  - Expected Impact: Medium
  - Policies to mitigate: strong medium-term economic program; maintain donor engagement; maintain fiscal and external buffers.
- Slippages in policy implementation and judicial challenges:
  - Medium Term Likelihood: Medium to High
  - Expected Impact: Medium to High
  - Policies to mitigate: build buffers; outreach to build consensus; prevent further competitiveness losses.

### BOX 2 — External sector assessment: key statistics and findings
- Current account deficit trajectory:
  - Declined from a peak of 8 percent of GDP in FY 2008 to about 1 percent of GDP in recent years; has begun to widen and could reach 3 percent of GDP this year.
- Structure of the deficit:
  - Large trade deficit: 6½ percent of GDP in FY 2016;
  - Remittances: 7 percent of GDP in FY 2016.
- Financial account balance:
  - Hovered around US$5–5½ billion over 2014–16; reliance on debt issuance rather than FDI.
- EBA results (as of late March 2017):
  - Current account gap estimated at between –1 and –1.8 percent of GDP.
  - REER-based EBA-lite suggests about 20 percent overvaluation; REER gap estimated in the 10 to 20 percent range.
- Reserves:
  - Gross reserves below adequacy level as per ARA metric (73 percent in December 2016) and have declined since completion of the EFF-supported program.

### FISCAL OUTLOOK AND SCENARIO ANALYSIS
- Baseline (unchanged policies):
  - Fiscal deficit remaining at 4.2 percent of GDP over the medium term.
  - Government and government-guaranteed debt gradually decline to 61 percent of GDP in FY 2021/22 (58½ percent excluding guarantees).
  - Gross financing needs gradually declining to about 23 percent of GDP over the medium-term.
- Active policy scenario (stronger revenue collection and consolidation):
  - Overall fiscal deficit (excluding grants) would gradually decline to 2½ percent of GDP.
  - Government and government-guaranteed debt would decline to around 57 percent of GDP over the medium term.
  - Fiscal consolidation would reduce the current account deficit and strengthen reserves; growth would be slightly lower than under the baseline but allow less monetary tightening and additional room for private credit growth.
- Authorities’ position:
  - Agreed on need for further fiscal consolidation but argued that reducing the fiscal deficit to about 3½ percent of GDP over the medium term would be sufficient.

### REVENUE MOBILIZATION — Primary recommended driver of consolidation
- Findings:
  - Pakistan’s tax-to-GDP ratio has remained low by international comparison.
- Recommended measures (staff advice):
  - Reduce tax concessions and exemptions (tax expenditures estimated at 1.3 percent of GDP in FY 2016/17).
  - Gradually raise petroleum taxes.
  - Strengthen withholding taxes for non-filers.
  - Improve provincial tax collection in agriculture, property, and services.
  - Strengthen FBR access to third-party information; enhance tax audits; build a centralized electronic fiscal cadaster; reduce outstanding tax refund claims.
  - Staff advised that significant additional tax policy and administrative measures of around 1½ percent of GDP may be needed to achieve FY 2017/18 revenue objective.

### EXPENDITURE POLICY AND COMPOSITION
- Policy recommendations:
  - Complement revenue measures with prudent spending plans.
  - Contain wage bill growth.
  - Rationalize and strengthen targeting of electricity subsidies to free resources for public investments and social expenditures.

### FISCAL FEDERALISM AND INSTITUTIONAL REFORMS
- Issues:
  - Transfer of a significant share of federal tax revenues to provinces (7th NFC Award, 2009) misaligned with devolution of expenditure responsibilities.
- Policy options:
  - Better align revenue and expenditure responsibilities.
  - Options: fully implement provincial expenditure responsibilities or burden-sharing arrangements; establish a fiscal council; set up jointly funded contingency fund; institute a national tax commission; strengthen public finance management.
- Authorities’ response:
  - Broad agreement on need for improvement; political feasibility and extensive consultations noted.

### PUBLIC DEBT MANAGEMENT
- Progress:
  - Strengthening of the Debt Policy Coordination Office and formulation of a debt and risk management strategy.
- Staff support:
  - Gradually lengthen maturity profile of domestic debt; minimize exposure to interest rate risk; reduce reliance on SBP financing and short-term borrowing.

### SOCIAL SAFETY NETS AND POVERTY PROTECTION
- Findings:
  - Federal public expenditures on social safety nets remain low at 0.54 percent of GDP (federal outlays).
  - BISP broadened coverage to 5.45 million beneficiaries at end-March 2017.
- Recommendations:
  - Broaden BISP coverage; increase size and timeliness of educational transfers.
  - Support national roll-out of new biometric payment system; pilot national survey roll-out expected by March 2018.

### FINANCIAL SECTOR — Resilience and reforms
- Priorities and progress:
  - Bring two small undercapitalized banks into regulatory compliance by June 2017.
  - Finalize operationalization of the Deposit Protection Corporation.
  - Phased implementation of Basel III liquidity (LCR and NSFR) and capital standards: finalize by end-2017 and end-2019, respectively.
  - Address NPLs and enact the Corporate Rehabilitation Act to strengthen bankruptcy framework.
- Infrastructure finance and PPPs:
  - Newly planned entities (Pakistan Investment Bank, Pakistan Development Fund, PPP Authority) should have strong governance and finance only financially viable projects; ensure gatekeeper role for Ministry of Finance for PPPs.
- AML/CFT:
  - Progress: FBR’s new investigative AML unit; FMU’s integrated data center.
  - Recommendations: strengthen supervision of reporting requirements; enhance law enforcement capacities; ensure effective implementation of UNSCR resolutions.

### ENERGY SECTOR AND PSE REFORMS (supporting medium-term growth)
- Power sector:
  - Planned expansion could eliminate Pakistan’s 6GW generation capacity gap in 2016 as early as end-2018.
  - Accumulation of power sector arrears resumed in first half of FY 2016/17 (PRs 53 billion), with stock increasing to PRs 374 billion (about 1.2 percent of GDP).
  - PHCL overall stock of debt remained constant at PRs 335 billion (1.1 percent of GDP).
  - Staff recommendations: strengthen DISCOs’ performance; adjust end-consumer tariffs; daily monitoring of DISCOs; proceed with planned IPOs of DISCOs; ensure transparency and risk management for new generation projects.
- Gas sector:
  - Support plans to step up LNG imports and foster domestic production.
  - New transmission pipeline completed at end-2016; second LNG import terminal expected finalized by August 2017.
  - Gas system losses declined to 10.8 percent (y-o-y) at end-2016.
  - Staff stressed resume semi-annual gas tariff notification and ensure full pass-through of LNG import prices.
- PSEs:
  - PSEs’ annual financial losses remain high at about 0.3 percent of GDP; accumulated losses at 3.8 percent of GDP.
  - Near-term priorities include minority sale of PIA, PSM private participation, IPO for GEPCO, KAPCO divestment, Pakistan Railways restructuring.
  - Medium-term: comprehensive strategy to eliminate PSE losses and ensure private sector participation.

### BUSINESS CLIMATE, GOVERNANCE, AND FINANCIAL INCLUSION
- Business climate reforms and progress:
  - Pakistan among top 10 reformers in World Bank Doing Business Indicators 2017.
  - Doing Business ranking improved to 144 from 148 (out of 190).
  - Main progress: digitalization of land records in Punjab; Secured Transactions Law; expansion of WeBOC; electronic data exchange with China and Afghanistan.
- Continued reform priorities:
  - Implement 2016 business climate strategy; ensure federal-provincial coordination; introduce e-payments, VOSS, complete land records digitalization, broaden WeBOC, single window for trade, registry for secured transactions, expand ADR mechanisms.
  - Complementary measures: broaden tax base; implement energy reforms; ease labor market rigidities; facilitate women's employment and workers’ mobility.
- Governance:
  - Transparency International ranking improved from 143 to 116 in the last five years.
  - Staff recommends strengthening anti-corruption institutions, enhancing asset declaration system, and effective use of AML tools.
- Financial sector deepening and inclusion:
  - Implementation of National Financial Inclusion Strategy 2016–20 ongoing.
  - Empirical finding: raising financial institutions to emerging markets’ average could yield annual economic growth gain of about 1 percent.
  - Priorities: increase access points; build banks’ capacity for MSME finance; raise financial awareness; facilitate access to credit for women, youth, low income, rural population, and SMEs.

### STAFF APPRAISAL — Growth outlook and macro vulnerabilities
- Favorable outlook supported by:
  - Restoration of macroeconomic stability and structural reforms under the 2013–16 EFF-supported program;
  - Large energy and infrastructure investments (including CPEC);
  - Favorable global developments.
- Vulnerabilities and recent developments:
  - Policy implementation weakened since completion of EFF-supported program: reserves declined, fiscal consolidation slowed, arrears in power sector re-emerged.
  - Absent policy changes, fiscal deficit would remain substantial and CPEC-related external obligations would reduce foreign reserves coverage.

### MACROECONOMIC POLICY RECOMMENDATIONS — Summary
- External buffers and trade competitiveness:
  - Allow greater exchange rate flexibility; pursue fiscal adjustment; implement structural reforms.
  - Exchange rate flexibility preferred over administrative measures (e.g., 100 percent cash margin requirement on nonessential imports).
  - Authorities committed to remove cash margin requirement within one year.
- Monetary policy and SBP autonomy:
  - Maintain prudent monetary policy; SBP to remain vigilant and reduce government borrowing from SBP.
  - Move toward inflation targeting over the medium term once preconditions met: exchange rate flexibility, stronger reserves, fiscal discipline, limited SBP borrowing, full operational independence.
- Fiscal policy priorities:
  - Focus on gradual consolidation in line with FRDL Act; prioritize revenue mobilization and improve spending composition.
  - Mobilize additional tax revenues; contain wage bill growth; rationalize electricity subsidies; strengthen social safety nets; improve fiscal federalism and public debt management.
- Financial sector and structural reforms:
  - Advance reforms to strengthen resilience; bring all banks into compliance; operationalize Deposit Protection Corporation; ensure governance of infrastructure finance entities; strengthen AML/CFT framework.
  - Address circular debt in power sector; restructure PSEs; continue business climate and governance reforms; foster financial deepening and inclusion.

_Italic: IMF staff appraisal text from the provided content unit._

### FISCAL AND EXTERNAL STATISTICS — Selected historicals and projections (preserve reported series)
- Real GDP at factor cost (2012/13–2017/18): 3.7, 4.1, 4.1, 4.5, 5.3, 5.5.
- Consumer prices (period average, 2012/13–2017/18): 7.4, 8.6, 4.5, 2.9, 4.3, 5.0.
- Current account balance (percent of GDP, 2012/13–2017/18): -1.1, -1.3, -1.0, -1.2, -3.0, -3.2.
- Gross reserves (millions of U.S. dollars, 2012/13–2017/18): 6,008; 9,096; 13,534; 18,143; 18,518; 18,883.
- Revenue and grants (percent of GDP, 2012/13–2017/18): 13.5, 15.2, 14.5, 15.5, 15.8, 17.6.
- Expenditure (percent of GDP, 2012/13–2017/18): 21.9, 20.1, 19.1, 19.2, 20.2, 21.6.
- General government debt incl. IMF obligations (percent of GDP, 2012/13–2017/18): 63.9, 63.5, 63.3, 67.7, 66.6, 65.1.
- Gross external financing needs (millions of US dollars, 2012/13–2017/18): 7,458; 9,536; 6,983; 7,520; 14,965; 13,626.
- Medium-term projections (selected): Real GDP at factor cost projected 5.5 (2017/18), 6.0 (2018/19), 5.7 (2019/20), 5.9 (2020/21), 5.9 (2021/22). Consumer prices (period average) projected 5.0 (2017/18–2021/22). Current account balance projected -1.2 (2017/18), -3.0 (2018/19), -3.2 (2019/20), -3.4 (2020/21), -3.3 (2021/22).
- Gross official reserves projected (billions of U.S. dollars): 18.9; 19.9; 20.4 (through 2021/22).
- General government and government guaranteed debt (incl. IMF, percent of GDP) projected: 66.1; 64.1; 62.6; 60.9 (progressing through projection horizon).

_Italic: Source: IMF staff presentation and tables, Pakistan country material (figures and tables as provided)._

### ANNEX I — Macroeconomics of Pakistan’s Quest for Energy and CPEC
- Scope and scale:
  - CPEC is a large package potentially totaling about $55 billion (19 percent of FY 2015/16 GDP) over the next decade.
  - Analysis based on 19 CPEC projects comprising $17.7 billion in the energy sector and $5.9 billion in infrastructure; plus several non-CPEC energy projects totaling $25.4 billion in advanced planning or implementation.
- Financing modalities:
  - CPEC infrastructure and transport: long term concessional government borrowing from China.
  - CPEC energy projects: FDI and commercial borrowing from Chinese financial institutions.
  - Non-CPEC energy projects: mix of private domestic financing, private commercial financing, and government concessional borrowing.
- Expected macro and BoP impacts:
  - Planned expansion could eliminate 6GW generation capacity gap as early as end-2018.
  - Construction and power generation could add about $13 billion to GDP in next seven years (4.7 percent of FY 2015/16 GDP).
  - BoP outflows from loan repayment, profit repatriation, and fuel imports expected to peak at about $3.5–$4.5 billion by FY 2024/25 (1.2–1.6 percent of FY 2015/16 GDP), then decline.
- Policy recommendations:
  - Build foreign exchange reserves;
  - Pursue reforms to raise exports and competitiveness;
  - Bring power distribution to full cost recovery;
  - Contain fiscal costs by limiting tax exemptions and gradual phasing in of external commitments;
  - Ensure complementary factors (productivity, trade connectivity) to capture second-round growth effects.

_Italic: Annex I. Macroeconomics of Pakistan’s Quest for Energy and CPEC (IMF staff analysis)._

### ANNEX V — Public and External Debt Sustainability — Key findings
- Current public debt position:
  - Public and publicly guaranteed debt increased to 70 percent of GDP in FY 2015/16.
  - Public debt excluding guarantees rose to about 67½ percent of GDP in FY 2015/16.
  - Net public debt increased to 61 percent of GDP.
- Baseline projections and scenarios:
  - Public and publicly guaranteed debt projected to decline to 61 percent of GDP by 2022.
  - Public debt excluding guarantees projected to decline to about 58½ percent of GDP by 2022.
  - Adverse shocks could raise debt ratios; combined macro-fiscal shock could lead to public debt ratios well above 70 percent.
- Financing needs and vulnerability indicators:
  - Gross financing needs projected to remain elevated and gradually decline to about 23 percent of GDP.
  - Elevated financing needs driven largely by loan amortization, pointing to rollover risk.
- Policy recommendations:
  - Sustained fiscal consolidation with clearly identified measures, strengthened tax administration, and public debt management.
  - Strengthen fiscal responsibility framework to build credibility and buffers.

### EXTERNAL DSA — Key findings and baseline
- Gross external debt rose to about 26 percent of GDP and expected to peak at about 28 percent of GDP in 2019 before declining.
- Gross external financing needs expected to peak close to 7½ percent of GDP in 2020.
- Bound and stress tests suggest external debt-to-GDP ratio remains resilient; external debt would not exceed 41½ percent of GDP under scenarios tested.
- Baseline external debt (percent of GDP, 2012–2022): 29.2; 26.3; 26.8; 24.1; 26.1; 26.8; 27.8; 28.3; 27.8; 27.8; 27.1.
- Identified external debt-creating flows and current account projections are detailed in the DSA tables and stress-test boxes provided.

_Italic: Annex V. Public and External Debt Sustainability — IMF country report content unit._

### DATA, TECHNICAL ASSISTANCE, AND COORDINATION
- Data provision is broadly adequate for surveillance; IMF technical assistance planned to improve fiscal accounts and national accounts compilation.
- World Bank, ADB, IFC, and MIGA engagement summarized, with World Bank program including 37 active projects as of April 30, 2017, and over US$3 billion budget financing support over past three years.
- Statistical issues (as of May 17, 2017): national accounts rebased to 2005/06; FBS developing quarterly national accounts; work on CPI, PPI, government finance statistics, monetary statistics, BoP/IIP consistency; participation in COFER, CDIS, CPIS.

_Italic: Source: cr17212 — IMF staff report and associated country material as provided in the content unit._

### EXECUTIVE SUMMARY

### EXECUTIVE SUMMARY

### Economic context and recent policy implementation
- Macroeconomic resilience was strengthened during the three-year Extended Fund Facility (EFF)-supported program completed in September 2016: growth increased, the fiscal deficit was reduced, and foreign currency reserves recovered.
- Structural reforms initiated during the program included addressing long-standing fiscal and energy sector constraints and strengthening social safety nets.
- Following program completion:
  - Policy implementation has weakened and macroeconomic vulnerabilities have begun to re-emerge: fiscal consolidation slowed, the current account deficit widened, and foreign exchange reserves declined.
  - On the structural front, the accumulation of arrears in the power sector has resumed, financial losses of ailing public sector enterprises (PSEs) continue to weigh on scarce fiscal resources, and exports remain low.
  - Poverty and inequality remain significant; growth needs to become more inclusive.

### Recent economic and financial developments
- Real GDP growth and inflation:
  - Real GDP growth is estimated at 5.3 percent in FY 2016/17.
  - Headline inflation reached 4.8 percent (y-o-y) in April 2017; core inflation inched up to 5.5 percent (y-o-y).
- External position and reserves:
  - International reserves declined to US$16.1 billion at end-April 2017 (3.4 months of imports) from US$18.1 billion in June 2016 (four months of imports).
  - The SBP's derivative position reached $3.6 billion in net obligations (from $2 billion in June 2016).
  - During the first three quarters of FY 2016/17, the current account deficit widened to 2 percent of GDP.
  - Exports dropped by 1 percent (y-o-y) in the period noted; imports rose 14 percent (y-o-y) driven by CPEC-related investment and recovering oil prices; remittances were -2 percent (y-o-y).
  - Real effective exchange rate appreciated 6 percent during the fiscal year (18 percent cumulatively over the past three years).
- Fiscal performance:
  - The overall fiscal deficit (excluding grants) was 3.8 percent of GDP in the first three quarters of FY 2016/17 (higher than expected).
  - Tax revenues were 0.6 percent of GDP lower than expected; nontax revenues were 0.7 percent of GDP lower than anticipated.
  - Execution of non-interest current spending and federal development spending was conservative in the first three quarters.
- Financial sector and markets:
  - Bank private credit growth reached 14 percent (y-o-y) at end-March 2017.
  - Gross and net NPL ratios decreased to 10.1 percent and 1.6 percent, respectively (December 2016).
  - Capital adequacy ratio averaged 16.2 percent.
  - Two small banks remain undercapitalized but are expected to be brought into compliance by end-June 2017.
  - Deposit Protection Corporation and related operationalization expected by end-June 2017.
  - MSCI reclassified Pakistan from frontier to emerging market, effective June 2017.
- Social and labor outcomes:
  - Unemployment is at 5.9 percent (10½ percent among youth and 9½ percent among women).
  - Poverty remains high at about 30 percent in 2013 (9 percent based on the 2001 poverty line).
  - Inequality slightly declined but remains sizable.
- Data and technical assistance:
  - Data provision is broadly adequate for surveillance; IMF technical assistance planned to improve fiscal accounts and national accounts compilation.

### Macroeconomic outlook and risks
- Growth outlook:
  - Real GDP growth is estimated at 5.3 percent in FY 2016/17 and is expected to strengthen to about 6 percent over the medium term on the back of stepped-up CPEC investments, better energy availability, and growth-supporting structural reforms.
  - Headline inflation likely to be contained at 4.3 percent on average in FY 2016/17.
- External financing and reserves projections:
  - The current account deficit is expected to widen to 3 percent of GDP in FY 2016/17.
  - With FDI inflows and significant government external borrowing expected in the fourth quarter, foreign reserves are projected to recover to $18.5 billion (3.8 months of imports; 73 percent of the IMF's reserve adequacy (ARA) metric).
  - Over the medium term, the current account deficit is expected to peak at 3.4 percent of GDP in 2019 as CPEC-related imports gather steam.
  - External financing needs are projected to increase to nearly 7½percent of GDP over the medium term.
- Risk assessment (skewed to the downside):
  - External risks:
    - Lower trading partner growth (notably China and GCC), tighter international financial conditions, and a faster rise in global oil prices could weaken exports, FDI, and remittances.
    - Remittances are particularly vulnerable as nearly two thirds of remittances to Pakistan originate from GCC countries.
    - Continued appreciation of the real effective exchange rate would further erode export competitiveness and discourage remittances.
    - Lower-than-expected export growth or remittances could heighten risks from rising repayment obligations and profit repatriation associated with energy and CPEC-related projects.
    - An upside risk is a renewed decline in oil prices, which would ease balance of payments pressures and support growth.
  - Domestic risks:
    - Political polarization ahead of the mid-2018 general elections could raise fiscal pressures and slow growth-supporting reforms.
    - Deterioration in security conditions could affect confidence, investment, and economic activity.

### Policy focus and recommendations
- Overarching priorities: strengthen macroeconomic resilience and generate higher and more inclusive growth through fiscal consolidation, prudent monetary and exchange rate policy, and structural reforms.
- Fiscal policy:
  - Gradual fiscal consolidation should continue through the medium term to address debt-related vulnerabilities.
  - FY 2017/18 budget is subject to risks; reaching the deficit target will likely require significant additional revenue measures.
- Monetary and exchange rate policy:
  - Prudent monetary policy and greater exchange rate flexibility will be key to preserve low inflation and re-build external buffers.
- Structural reforms to support higher and more inclusive growth should focus on:
  - Ensuring a financially sound and growth-supporting energy sector.
  - Restructuring and attracting private sector participation in PSEs to reduce financial losses and related fiscal costs and vulnerabilities.
  - Bolstering social protection.
  - Strengthening the business climate and governance.
  - Fostering financial deepening and inclusion.
- Implementation status and needed follow-up:
  - Progress has been made on revenue mobilization, SBP independence, financial sector stability, targeted cash transfers under BISP, and business climate reforms.
  - Recent resumption of circular debt accumulation in the energy sector and setbacks in restructuring PSEs underscore the need for sustained reform efforts.

_Italic: IMF staff mission discussed these issues in Dubai during March 28–April 5, 2017; approved by Daniela Gressani and Vitaliy Kramarenko._

### Box 1. Pakistan: Risk Assessment Matrix

### Box 1. Pakistan: Risk Assessment Matrix

### Risk Assessment Matrix: overview
- The RAM shows events that could materially alter the baseline path (the scenario most likely to materialize in the view of IMF staff).
- Likelihood classification: “low” = probability below 10 percent; “medium” = probability between 10 percent and 30 percent; “high” = probability between 30 percent and 50 percent.
- The RAM reflects staff views on the source of risks and overall level of concern as of the time of discussions with the authorities. Non-mutually exclusive risks may interact and materialize jointly.

### Major risks, likelihoods, impacts on realization, and policies to mitigate
- Retreat from cross-border integration.
  - Medium Term Likelihood: High
  - Expected Impact Upon Realization: Low to Medium
  - Expected effects:
    - Impaired exports;
    - Reduced remittances;
    - Weakened FDI prospects;
    - Dampened growth;
    - More difficult and costly external financing.
  - Policies to mitigate:
    - Sustain build-up of fiscal and external buffers;
    - Allow for exchange rate flexibility to support competitiveness;
    - Maintain adequate medium-term debt strategy;
    - Ensure strong financial regulation and supervision.

- Structurally weak growth in key advanced and emerging economies (incl. GCC countries).
  - Medium Term Likelihood: High/Medium
  - Expected Impact Upon Realization: Medium
  - Expected effects:
    - Impaired exports;
    - Reduced remittances;
    - Weakened FDI prospects;
    - Dampened growth.
  - Policies to mitigate:
    - Sustain build-up of fiscal and external buffers;
    - Allow for exchange rate flexibility to support competitiveness;
    - Improve business climate and enhance governance and anti-corruption measures.

- Significant slowdown in China.
  - Medium Term Likelihood: Low/Medium
  - Expected Impact Upon Realization: Medium
  - Expected effects:
    - Impaired exports;
    - Reduced remittances;
    - Weakened FDI prospects, including in the context of CPEC;
    - Dampened growth;
    - More difficult and costly external financing.
  - Policies to mitigate:
    - Sustain build-up of fiscal and external buffers;
    - Allow for exchange rate flexibility to support competitiveness;
    - Improve business climate;
    - Maintain adequate medium-term debt strategy;
    - Ensure strong financial regulation and supervision.

- Significant further strengthening of the U.S. dollar and/or higher rates.
  - Medium Term Likelihood: High
  - Expected Impact Upon Realization: Medium
  - Expected effects:
    - More difficult and costly external financing;
    - Deterioration of the stock market;
    - Possible difficulties with privatization.
  - Policies to mitigate:
    - Sustain build-up of external buffers;
    - Allow for exchange rate flexibility to support competitiveness;
    - Maintain adequate medium-term debt strategy;
    - Ensure strong financial regulation and supervision.

- Security conditions.
  - Medium Term Likelihood: Medium to High
  - Expected Impact Upon Realization: Medium
  - Expected effects:
    - Eroded confidence;
    - Discouraged investment;
    - Increased military spending/fiscal burden;
    - Disrupted economic activity.
  - Policies to mitigate:
    - Instill confidence through a strong medium-term economic program;
    - Maintain engagement with donors;
    - Maintain fiscal and external buffers.

- Slippages in policy implementation and repercussions of judicial challenges.
  - Medium Term Likelihood: Medium to High
  - Expected Impact Upon Realization: Medium to High
  - Expected effects:
    - Eroded confidence;
    - Erosion of macroeconomic stability gains;
    - Discouraged investment;
    - Weakened growth prospects.
  - Policies to mitigate:
    - Sustain build-up of fiscal and external buffers;
    - Continue outreach to build wide consensus on national economic policy agenda;
    - Strive to prevent further competitiveness losses.

### Authorities’ outlook and program priorities
- Authorities expected growth to accelerate to 7 percent in the medium term supported by:
  - strong CPEC-related investments;
  - favorable second-round effects from better infrastructure and energy availability;
  - an improved security environment.
- Authorities expected a moderately smaller medium-term current account deficit, assuming:
  - a more pronounced slowdown in import growth;
  - a stronger recovery in exports and remittances.
- Authorities viewed reserves as adequate as they cover more than three months of imports.

### A. Preserving Low Inflation and External Buffers
- Key staff messages:
  - Bolster external buffers and improve trade competitiveness to strengthen macroeconomic resilience.
  - Reverse recent decline in reserves and allow for greater exchange rate flexibility to rebuild external buffers and strengthen competitiveness.
- Staff assessment of external position and REER:
  - External position is moderately weaker than suggested by fundamentals and desirable policies.
  - Real exchange rate is moderately overvalued (between 10 and 20 percent; Box 2).
  - The REER-based EBA-lite method suggests about 20 percent overvaluation; the REER gap is therefore estimated in the 10 to 20 percent range.
- On administrative measures and exchange restrictions:
  - Authorities introduced cash margin requirements (100 percent) on nonessential consumer goods imports in February 2017.
  - Cash margin deposits are not remunerated and constitute an exchange restriction and multiple currency practice subject to Fund jurisdiction under Article VIII Sections 2(a) and 3.
  - Staff argued allowing greater downward exchange rate flexibility would be preferable and more effective than administrative measures.
  - Authorities committed to remove such restrictions within one year and expected other export-support initiatives to help in the interim.
- Monetary policy and SBP borrowing:
  - Staff recommended prudence in monetary policy and unwinding the temporary surge in government borrowing from the SBP.
  - Monetary policy stance has been appropriately accommodative, with inflation below the SBP’s target and the real policy rate below the historical average.
  - Staff stressed the SBP needs to remain vigilant and be prepared to tighten if inflationary or foreign exchange market pressures build up.
  - Staff stressed gradually reducing the stock of government borrowing from the SBP to support independence and credibility of monetary policy.
- Inflation targeting and SBP autonomy:
  - Staff supported plans to move towards inflation targeting over the medium-term; pre-conditions include:
    - Allowing greater exchange rate flexibility;
    - Strengthening reserve buffers;
    - Maintaining fiscal discipline;
    - Limiting government borrowing from the SBP;
    - Ensuring SBP full operational independence.
  - Progress noted: strengthening the interest rate corridor, enhancing analytical and forecasting capabilities, improving transparency and policy communication.
  - In August 2016, SBP developed a legislative action plan to address remaining recommendations from the 2013 Safeguards Assessment; proposed amendments aim to clarify objectives, limit scope for providing credit to the government, establish an executive board, and enhance financial autonomy.
  - Authorities indicated commitment to place amendments before parliament in FY 2017/18.

### Box 2 highlights (External Sector Assessment) — key statistics and findings
- Current account deficit trajectory:
  - Declined from a peak of 8 percent of GDP in FY 2008 to about 1 percent of GDP in recent years;
  - Has begun to widen and could reach 3 percent of GDP this year.
- Structure of the deficit:
  - Large trade deficit: 6½ percent of GDP in FY 2016;
  - Remittances: 7 percent of GDP in FY 2016.
- Financial account balance:
  - Hovered around US$5–5½ billion over 2014–16.
  - Structure shows reliance on debt issuance rather than FDI flows, with FDI on a declining trend over the last decade.
- Staff estimates from EBA results (as of late March 2017):
  - Current account gap estimated at between –1 and –1.8 percent of GDP (EBA exercise).
  - This suggests an overvaluation in the 10–18 percent range.
  - REER-based EBA-lite suggests about 20 percent overvaluation.
  - Real effective exchange rate gap estimated to be in the 10 to 20 percent range.
- Reserves:
  - Gross reserves have remained below the adequacy level as suggested by the ARA metric (73 percent in December 2016) and have declined since completion of the EFF-supported program.
  - Resumption of accumulation of reserves—including through allowing downward exchange rate flexibility—is needed.

### B. Building Fiscal Buffers Through Gradual Consolidation
- Fiscal space constraints:
  - Pakistan’s fiscal space is limited based on economic considerations and national fiscal rules.
  - High debt levels and gross financing needs point to remaining vulnerabilities.
  - Cautiously favorable medium-term debt dynamics in the baseline are subject to adverse shocks to growth, the primary balance, and debt rollovers.
  - Public debt and the fiscal deficit are projected to be above the ceilings set in the Fiscal Responsibility and Debt Limitation (FRDL) Act.
- Recent fiscal performance and projections:
  - Staff projected the overall fiscal deficit (excluding grants) at 4.5 percent of GDP, close to last year’s outcome (4.6 percent of GDP) but above the budget deficit target (3.8 percent of GDP).
  - Authorities expected the overall fiscal deficit (excluding grants) at 4.2 percent of GDP.
- FY 2017/18 budget and staff advice:
  - Draft budget targets the general government fiscal deficit (excluding grants) at 4.2 percent of GDP in FY 2017/18.
  - Staff recommended stronger consolidation in line with the new deficit objective under the FRDL Act.
  - Staff advised that significant additional tax policy and administrative measures of around 1½ percent of GDP may be needed to achieve the FY 2017/18 revenue objective.
    - Possible measures include further reducing tax expenditures (estimated at 1.3 percent of GDP in FY 2016/17), gradually raising petroleum taxes, further strengthening the system of withholding taxes for non-filers, and improving provincial tax collection in agriculture, property, and services.
    - These measures should be complemented by continued strong administrative efforts to improve tax compliance.
  - Risks to the budget:
    - Interest and other current spending could turn out higher than budgeted (by about ½ percent of GDP).
    - Emphasis needed on ensuring the quality of development spending given planned scaling up.
    - Targeted provincial surpluses (1 percent of GDP) could be subject to risks.
  - Staff advised preparing contingency measures on both revenue and spending sides, including prioritization of development spending, if revenue falls short.
  - Staff highlighted that a higher-than-budgeted deficit would exert additional pressures on the current account and reserves.

*International Monetary Fund staff assessment as presented in the PDF chapter.*

### 23.      Staff recommended sustained medium-term fiscal consolidation to ensure fiscal

### cr17212 - 23.      Staff recommended sustained medium-term fiscal consolidation to ensure fiscal

### Fiscal outlook and scenario analysis
- Baseline (unchanged policies):
  - Fiscal deficit remaining at 4.2 percent of GDP over the medium term.
  - Government and government-guaranteed debt gradually decline to 61 percent of GDP in FY 2021/22 (58½ percent excluding guarantees).
  - Federal budget deficit and public debt would remain above the limit specified in the FRDL Act.
  - Gross financing needs gradually declining to about 23 percent of GDP over the medium-term.
- Active policy scenario (further gradual fiscal consolidation driven by stronger revenue collection):
  - Overall fiscal deficit (excluding grants) would gradually decline to 2½ percent of GDP.
  - Government and government guaranteed debt would decline to around 57 percent of GDP over the medium term.
  - Owing to fiscal consolidation, growth would be slightly lower than under the baseline while the current account deficit would be reduced and reserves strengthened.
  - Stronger fiscal adjustment would allow for less monetary tightening, additional room for private credit growth, and support the SBP’s operational independence.
- Authorities’ position:
  - Agreed on the need for further fiscal consolidation but argued that reducing the fiscal deficit to about 3½ percent of GDP over the medium term would be sufficient to reduce debt vulnerabilities while supporting higher growth.

### Revenue mobilization (primary recommended driver)
- Findings and staff recommendations:
  - Pakistan’s tax-to-GDP ratio has remained low by international comparison; mobilizing additional tax revenues is central to fiscal consolidation and to finance priority infrastructure and social spending.
  - Options to raise revenues include: further reducing tax concessions and exemptions; raising petroleum taxes and withholding taxes; strengthening collection of provincial taxes on services, property, and agricultural income.
  - Strengthening tax administration: improve FBR’s access to third-party information; enhance tax audits; build a centralized electronic fiscal cadaster; reduce the stock of outstanding tax refund claims.
  - Measures already noted: financial transactions withholding tax for nonfilers has helped address tax evasion; FBR’s new AML unit will support efforts to combat tax evasion and recover illicit proceeds.

### Expenditure policy and composition
- Policy recommendations:
  - Complement revenue measures with prudent spending plans.
  - Strengthen spending composition by containing wage bill growth.
  - Further rationalize and strengthen targeting of electricity subsidies to free resources for growth-supporting public investments and social expenditures.

### Fiscal federalism and institutional reforms
- Issues identified:
  - Transfer of a significant share of federal tax revenues to provinces (7th NFC Award, 2009) was not well-aligned with devolution of expenditure responsibilities, producing an unbalanced fiscal position across government levels and reduced incentives to mobilize revenues.
- Policy options recommended:
  - Better align revenue and expenditure responsibilities consistent with the constitutional framework.
  - Options include: fully implementing provincial expenditure responsibilities or establishing burden-sharing arrangements; establishing a fiscal council or similar body for federal and provincial fiscal targets; setting up a jointly funded contingency fund for large shocks; instituting a national tax commission or coordination committee; strengthening public finance management frameworks; increasing incentives to mobilize provincial tax revenues.
- Authorities’ response:
  - Broad agreement on need for improvement, while noting political feasibility may be limited and extensive consultations with provinces will be required.

### Public debt management
- Progress and recommendations:
  - Strengthening of the Debt Policy Coordination Office (enhanced staffing) and formulation of a debt and risk management strategy welcomed.
  - Authorities’ borrowing strategy: remain active in international capital markets; mobilize development partners’ funding; increase mobilization from domestic non-banking sector.
  - Staff supported intentions to: gradually lengthen maturity profile of domestic debt; minimize exposure to interest rate risk; reduce reliance on SBP financing and short-term borrowing.

### Social safety nets and poverty protection
- Findings:
  - Federal public expenditures on social safety nets remain low at 0.54 percent of GDP (federal outlays) in international comparison.
  - Benazir Income Support Program (BISP) effectively contributed to reduce poverty among beneficiaries.
- Recommendations and developments:
  - Step up social safety nets by broadening BISP coverage and increasing the size and timeliness of educational transfers.
  - Welcomed progress: broadening BISP coverage to 5.45 million beneficiaries at end-March 2017; increase in stipends in line with inflation; new implementation contracts to ensure timely delivery of educational cash transfers; finalization of pilot phase of the new national survey with roll-out expected by March 2018.
  - Support for planned national roll-out of new biometric payment system to reduce fraud and strengthen program efficiency.

### Financial sector: resilience and reforms
- Priorities and progress:
  - Bring two small undercapitalized banks into regulatory compliance by June 2017 (one raising Tier-2 capital; the other publicly owned and in divestment).
  - Finalize operationalization of the Deposit Protection Corporation.
  - Phased implementation of Basel III liquidity (LCR and NSFR) and capital standards: to be finalized by end-2017 and end-2019, respectively.
  - Address NPLs and enact the Corporate Rehabilitation Act to strengthen bankruptcy framework.
  - Note: NPLs could increase as private credit growth rises; effective implementation of regulatory and supervisory framework is essential.
- Infrastructure entities and PPPs:
  - Newly planned entities (Pakistan Investment Bank, Pakistan Development Fund, PPP Authority) should have strong governance and finance only financially viable projects to avoid contingent liabilities.
  - For the PPP Authority, ensure a gatekeeper role for the Ministry of Finance and strong secondary legislation in line with international best practices.
- AML/CFT:
  - Progress welcomed: FBR’s new investigative AML unit; FMU’s integrated data center.
  - Recommendations: ensure effective supervision of reporting requirements; strengthen exchange of financial intelligence with FMU; enhance law enforcement capacities (including FBR AML unit) for financial investigations.
  - Support for continued effective implementation of UNSCR resolutions to counter terrorism financing.
  - Authorities committed to ensuring entity transparency and timely exchange of information on tax matters and addressing shortcomings (availability of ownership information; limiting delays in responding to requests).

### Energy sector and public enterprise reforms (supporting medium-term growth)
- Power sector:
  - Reforms focused on increasing generation capacity and bringing distribution closer to cost recovery.
  - Accumulation of power sector arrears resumed in first half of FY 2016/17 (PRs 53 billion), with stock increasing to PRs 374 billion (about 1.2 percent of GDP).
  - PHCL overall stock of debt remained constant at PRs 335 billion (1.1 percent of GDP).
  - Staff recommendations: strengthen DISCOs’ performance; adjust end-consumer tariffs to reflect higher input costs; continue daily monitoring of DISCOs; proceed with planned IPOs of DISCOs to strengthen corporate governance and mobilize proceeds to reduce outstanding arrears.
  - Emphasized the need for transparency and risk management for new power generation projects.
- Regulatory framework:
  - Preserve NEPRA’s independence; maintain appropriate tariff-setting process amid planned NEPRA Act amendments.
  - Swiftly resolve litigation with regulator on DISCOs’ benchmark distribution losses and recoveries; move to establish a multi-year tariff framework to attract private investment and support DISCO IPOs.
- Gas sector:
  - Support plans to step up LNG imports and foster domestic production.
  - New transmission pipeline completed at end-2016; second LNG import terminal expected finalized by August 2017.
  - Authorities increased producer prices for non-conventional gas in December 2016.
  - Staff stressed: resume regular semi-annual gas tariff notification; ensure cost-recovery tariffs; full pass-through of LNG import prices to consumers.
  - Gas system losses declined to 10.8 percent (y-o-y) at end-2016 but remain high by international standards.
  - Support for legislation to curb gas theft, network modernization, advanced metering and leak detection; welcome market reforms (third party access, separation of transmission and distribution licensing).
- Public sector enterprises (PSEs):
  - PSEs’ annual financial losses remain high at about 0.3 percent of GDP; accumulated losses at 3.8 percent of GDP.
  - Near-term priorities: finalize transaction structure for PIA’s minority sale; attract private participation in PSM; move ahead with IPO for GEPCO and set timelines for other DISCOs’ IPOs; finalize KAPCO’s divestment; advance Pakistan Railways restructuring plan; finalize ongoing capital market transactions.
  - Continue annual report publication on PSEs’ financial performance to strengthen monitoring and transparency.
  - Over the medium term, develop a comprehensive strategy to eliminate PSEs’ losses and ensure private sector participation.
  - Authorities indicated continued intention to pursue restructuring and attract private sector participation to contain PSEs’ financial losses.

*IMF Staff Report (excerpt).*

### 36.      Efforts to improve the business climate have begun to bear fruit. Pakistan was among

### 36.      Efforts to improve the business climate have begun to bear fruit. Pakistan was among

### Business climate reforms and progress
- Pakistan was among the top 10 reformers in the World Bank Doing Business Indicators 2017.
- Doing Business ranking improved to 144 from 148 (out of 190 countries).
- Main progress included:
  - the digitalization of land records in Punjab,
  - the enactment of the Secured Transactions Law,
  - the expansion of the electronic platform for trade (WeBOC),
  - the electronic data exchange with China and Afghanistan.

### Continued reform priorities to support private investment and exports
- Continue implementation of the 2016 business climate strategy to realize further improvement and support private sector development.
- Important implementation requirements:
  - ensure coordination between federal and provincial governments,
  - systematic monitoring of reform advancements,
  - outreach to the private sector.
- Key measures ahead identified by staff and authorities:
  - introducing e-payment for taxes, customs and property registration;
  - adopting the virtual one-stop shop (VOSS) at the provincial level;
  - finalizing the digitalization of land records;
  - further broadening the use of WeBOC;
  - setting up a single window platform for trade and a registry for secured transactions;
  - expanding commercial Alternative Dispute Resolution mechanisms.
- Complementary measures:
  - broaden the tax base and implement energy sector reforms to level the playing field, promote competition, and reduce costs.
  - ease rigidities in the formal labor market, facilitate job supply and demand matching (including the ongoing development of an online job portal), encourage employment of women, and foster workers’ mobility to support private sector job creation given significant unemployment, especially among youth and women.

### Governance: progress and remaining actions
- Transparency International ranking improved from 143 to 116 in the last five years.
- Despite progress, Pakistan ranks below emerging market averages in the World Bank Governance Indicators.
- Staff recommended continuing efforts to improve governance to promote business confidence and level the playing field.
- Priority governance measures:
  - strengthen capacities of anti-corruption institutions;
  - enhance the asset declaration system (including mechanisms for verification and public access);
  - ensure the effective use of AML tools (such as enhanced due diligence for high-risk customers).
- Staff welcomed Pakistan’s membership to the Open Government Partnership and the development of an action plan to enhance transparency and accountability.

### Financial sector deepening and inclusion
- Staff and authorities concurred that fostering financial sector deepening and inclusion would support higher and more inclusive growth.
- Empirical finding: raising the level of development of Pakistani financial institutions to emerging markets’ average could yield annual economic growth gain of about 1 percent.
- Implementation status and priorities:
  - Implementation of the National Financial Inclusion Strategy 2016–20 is ongoing.
  - Substantial progress toward strengthening financial infrastructure and regulatory framework, including for Islamic finance.
  - Priorities to foster deepening and inclusion:
    - increase access points;
    - build capacity of banks to provide easy and need-based funding products to small and micro businesses;
    - raise financial awareness and literacy;
    - facilitate access to credit for women, youth, low income and rural population, and SMEs (see Annex IV).

### Staff appraisal: growth outlook and macro vulnerabilities
- Pakistan’s growth outlook is favorable, supported by:
  - restoration of macroeconomic stability and structural reforms set in motion during the 2013–16 EFF-supported program;
  - large energy and infrastructure investments, including in the context of CPEC;
  - favorable global developments.
- Risks and recent developments:
  - Policy implementation has weakened since completion of the EFF-supported program and economic vulnerabilities have begun to re-emerge:
    - foreign exchange reserves have declined as the current account deficit has widened;
    - the pace of fiscal consolidation has slowed;
    - arrears in the power sector have started to accumulate again.
  - Over the medium-term, absent policy changes, the fiscal deficit would remain substantial, and external payment obligations from CPEC-related investments would lead to a reduction in foreign reserves coverage, highlighting the need for a strong and sustained pick-up in exports.

### Macroeconomic policy recommendations
- External buffers and trade competitiveness:
  - Allow greater exchange rate flexibility, pursue fiscal adjustment, and implement structural reforms to build external buffers and strengthen competitiveness.
  - Exchange rate flexibility preferred over administrative measures (for example, the recently introduced cash margin requirement on imports) to address external imbalances.
  - The authorities’ intention to remove the cash margin requirement within one year is welcome.
  - Staff supports the authorities’ request for approval of retention of the exchange restriction and multiple currency practice given that the measure has been adopted for balance of payments reasons and is temporary and non-discriminatory.
- Monetary policy and SBP autonomy:
  - Monetary policy needs to be prudent to preserve low inflation; the SBP should remain vigilant and prepared to tighten if inflationary or foreign exchange market pressures build up.
  - Planned new legislation to strengthen the SBP’s autonomy is welcome.
  - Additional steps should address remaining recommendations of the 2013 Safeguards Assessment in areas of the SBP’s institutional autonomy, governance, and personal autonomy of Board members.
  - Gradually reducing the stock of government borrowing from the SBP will support the independence and credibility of monetary policy.
  - Moving to inflation targeting over the medium term is welcome once key preconditions are in place, including greater exchange rate flexibility, stronger reserves buffers, full operational autonomy of the SBP, and reduced fiscal imbalances.

### Fiscal policy priorities
- With limited fiscal space and a favorable growth outlook, fiscal policy should focus on consolidation.
- A stronger consolidation in FY 2017/18 than planned in the budget, in line with the deficit target under the revised FRDL Act, would have been preferable.
- Reaching the FY 2017/18 budget target will likely require significant additional revenue measures.
- Medium-term fiscal strategy:
  - gradual fiscal consolidation in line with the FRDL Act to address debt-related vulnerabilities and reduce pressures on the current account deficit and reserves;
  - prioritize revenue mobilization and improve composition of public spending.
- Specific fiscal actions:
  - mobilize additional tax revenues by broadening the tax base and strengthening tax administration given Pakistan’s still low tax-to-GDP ratio;
  - contain growth of the wage bill and further rationalize electricity subsidies to free resources for growth-supporting public investment and priority social spending;
  - strengthen social safety nets to protect the most vulnerable from fiscal consolidation and alleviate poverty and inequality;
  - strengthen the efficiency, flexibility, and responsiveness of the national fiscal federalism framework;
  - further strengthen public debt management to reduce debt-related vulnerabilities.

### Financial sector and structural reforms
- Financial sector resilience:
  - Advance financial sector reforms to further strengthen resilience.
  - Bring all banks into regulatory compliance.
  - Make the planned Deposit Protection Corporation operational to support banking sector stability.
  - Ensure planned infrastructure finance entities have strong governance and finance only financially viable projects to avoid contingent liabilities.
  - Continue efforts to strengthen the AML/CFT framework in line with international standards and ensure effective implementation.
- Structural reforms to support inclusive growth and stability:
  - Swiftly address the renewed build-up in circular debt and maintain a strong regulatory framework to ensure a financially sound and growth-supporting energy sector amid significant expansion in generation capacity.
  - Restructure and attract private sector participation in ailing PSEs to improve efficiency, reduce financial losses and related fiscal costs and vulnerabilities.
  - Continue implementation of planned steps to strengthen the business climate and governance to support private investment and job creation.
  - Continue efforts to foster financial deepening and inclusion.

*IMF staff appraisal text from the provided content unit.*

### 48.      Staff recommends that the next Article IV Consultation take place on the standard

### 48.      Staff recommends that the next Article IV Consultation take place on the standard 12-month cycle.

### Staff recommendation
- Staff recommends that the next Article IV Consultation take place on the standard 12-month cycle.

### Selected economic indicators and trends (2008–17; 2012/13–2017/18 tables and summaries)
- Real GDP at factor cost: 3.7, 4.1, 4.1, 4.5, 5.3, 5.5 (2012/13–2017/18).
- GDP deflator at factor cost: 7.1, 7.4, 4.3, 0.6, 3.5, 5.0 (2012/13–2017/18).
- Consumer prices (period average): 7.4, 8.6, 4.5, 2.9, 4.3, 5.0 (2012/13–2017/18).
- Consumer prices (end of period): 5.9, 8.2, 3.2, 3.2, 5.3, 5.0 (2012/13–2017/18).
- Pakistani rupees per U.S. dollar (period average): 8.4, 6.4, -1.5, 2.7, ...... (table indicates incomplete series).

### Saving, investment, and external balances (selected figures)
- Gross saving: 13.9, 13.4, 14.7, 14.3, 12.7, 15.3 (2012/13–2017/18).
- Gross capital formation: 15.0, 14.6, 15.7, 15.6, 15.8, 18.5 (2012/13–2017/18).
- Current account balance (in percent of GDP): -1.1, -1.3, -1.0, -1.2, -3.0, -3.2 (2012/13–2017/18).
- Gross reserves (in millions of U.S. dollars): 6,008; 9,096; 13,534; 18,143; 18,518; 18,883 (2012/13–2017/18).
- In months of next year's imports of goods and services: 1.5; 2.2; 3.3; 4.0; 3.8; 3.6 (2012/13–2017/18).

### Public finances and debt (levels and ratios)
- Revenue and grants (percent of GDP): 13.5, 15.2, 14.5, 15.5, 15.8, 17.6 (2012/13–2017/18).
- Expenditure (including statistical discrepancy, percent of GDP): 21.9, 20.1, 19.1, 19.2, 20.2, 21.6 (2012/13–2017/18).
- Budget balance (including grants, percent of GDP): -8.4, -4.9, -5.3, -4.4, -4.3, -4.0 (2012/13–2017/18).
- Budget balance (excluding grants, percent of GDP): -8.5, -5.7, -5.4, -4.6, -4.5, -4.2 (2012/13–2017/18).
- Primary balance: -3.9, -0.3, -0.5, -0.1, -0.1, -0.1 (2012/13–2017/18).
- General government debt incl. IMF obligations (percent of GDP): 63.9, 63.5, 63.3, 67.7, 66.6, 65.1 (2012/13–2017/18).
- External general government debt (percent of GDP): 21.1, 20.2, 18.9, 20.8, 21.3, 21.5 (2012/13–2017/18).
- Domestic general government debt (percent of GDP): 42.8, 43.3, 44.4, 46.8, 45.4, 43.6 (2012/13–2017/18).

### Medium-term macroeconomic framework (2012/13–2021/22 projections)
- Real GDP at factor cost: 3.7 (2012/13); 5.3 (2016/17); projected 5.5 (2017/18), 6.0 (2018/19), 5.7 (2019/20), 5.9 (2020/21), 5.9 (2021/22).
- Consumer prices (period average): 7.4 (2012/13); 4.3 (2016/17); projected 5.0 (2017/18–2021/22, annually).
- Current account balance (in percent of GDP): -1.1 (2012/13); -1.3 (2013/14); -1.0 (2014/15); projected -1.2 (2017/18), -3.0 (2018/19), -3.2 (2019/20), -3.4 (2020/21), -3.3 (2021/22).
- Net capital flows (percent of GDP): 0.5 (2012/13); 7.0 (2013/14); 5.4 (2014/15); projected 7.3 (2017/18), 9.5 (2018/19), 10.6 (2019/20), 12.1 (2020/21), 13.0 (2021/22).
- Gross official reserves (billions of U.S. dollars): 6.0, 9.1, 13.5, 18.1, 18.5, 18.9, projected 18.9, 19.9, 20.4 (2012/13–2021/22 series).
- General government and government guaranteed debt (incl. IMF, percent of GDP): 66.7, 65.7, 65.7, 70.0, 69.1, 67.6, projected 66.1, 64.1, 62.6, 60.9 (2012/13–2021/22).

### Balance of payments (selected flows and projections, 2012/13–2021/22)
- Current account (in millions of U.S. dollars): -2,496; -3,130; -2,709; -3,394; -8,990; -10,074; projected -11,629; -12,151; -12,306; -13,048 (2012/13–2021/22).
- Balance on goods (millions of U.S. dollars): -15,431; -16,701; -17,284; -18,478; -23,860; -24,848; projected -26,643; -27,116; -27,512; -27,658.
- Exports, f.o.b. (millions of U.S. dollars): 24,795; 25,068; 24,083; 21,972; 21,786; 23,824; projected 26,188; 28,665; 31,379; 34,152.
- Imports, f.o.b. (millions of U.S. dollars): 40,226; 41,769; 41,367; 40,550; 45,646; 48,672; projected 52,830; 55,780; 58,890; 61,811.
- Services (net, millions of U.S. dollars): -1,472; -2,551; -2,884; -2,964; -3,290; -3,788; projected -4,169; -4,403; -4,573; -5,478.
- Current transfers (net, millions of U.S. dollars): 18,092; 20,065; 22,040; 23,383; 23,262; 23,917; projected 24,912; 25,850; 26,959; 28,351.
- Direct investment in Pakistan (millions of U.S. dollars): 1,456; 1,700; 923; 1,904; 2,147; 2,595; projected 3,632; 4,515; 5,267; 5,537.
- Financial account (millions of U.S. dollars): 549; 5,553; 4,996; 5,605; 8,964; 10,046; projected 11,700; 12,729; 14,341; 14,574.
- End-period gross official reserves (millions of U.S. dollars): 6,008; 9,096; 13,534; 18,143; 18,518; 18,883; projected 18,898; 18,917; 19,863; 20,386.
- Gross external financing needs (in millions of U.S. dollars): 7,458; 9,536; 6,983; 7,520; 14,965; 13,626; projected 16,900; 20,515; 18,673; 20,618.

### General government budget (2012/13–2017/18; rupees)
- Revenue and grants (Rs billions): 3,011; 3,837; 3,984; 4,512; 5,050; 6,234 (2012/13–2017/18).
- Tax revenue (Rs billions): 2,231; 2,640; 3,024; 3,660; 4,081; 4,957.
- FBR revenue (Rs billions): 1,936; 2,272; 2,594; 3,112; 3,432; 4,013.
- Expenditure (Rs billions): 4,885; 5,058; 5,426; 5,796; 6,433; 7,647.
- Current expenditure (Rs billions): 3,757; 4,123; 4,556; 4,907; 5,208; 5,546.
- Interest (Rs billions): 991; 1,148; 1,304; 1,263; 1,342; 1,363.
- Development expenditure and net lending (Rs billions): 1,112; 997; 1,047; 1,102; 1,225; 2,101.
- Overall Balance (including grants, Rs billions): -1,873; -1,221; -1,442; -1,284; -1,383; -1,413.
- Financing (Rs billions): 18; 73; 1,221; 1,442; 1,284; 1,383; 1,413.
- General government debt incl. IMF obligations (Rs billions): 14,296; 15,975; 17,378; 19,665; 21,229; 23,051.
- Nominal GDP (market prices, Rs billions): 22,386; 25,169; 27,443; 29,103; 31,862; 35,390.

### Monetary sector and monetary survey (2012/13–2017/18)
- Net foreign assets (banking system, Rs billions): 263; 593; 813; 1,008; 1,022; 1,082.
- Net domestic assets (Rs billions): 8,594; 9,374; 10,469; 11,817; 13,522; 15,174.
- Broad money (Rs billions): 8,856; 9,967; 11,282; 12,825; 14,543; 16,256.
- Reserve money (Rs billions): 2,534; 2,860; 3,142; 3,974; 4,534; 5,148.
- Currency outside scheduled banks (Rs billions): 1,938; 2,178; 2,555; 3,334; 3,673; 3,957.
- Private sector credit (Rs billions): 3,387; 3,798; 4,021; 4,469; 5,050; 5,731.
- Broad money (percent change): 15.9; 12.5; 13.2; 13.7; 13.4; 11.8.
- Reserve money (percent change): 15.8; 12.9; 9.8; 26.5; 14.1; 13.5.
- Private credit (percent change): -0.6; 12.5; 5.9; 11.1; 13.0; 13.5.

### Financial indicators and market data (selected series)
- Emerging Market Bond Index Global (July 2013–April 2017): Pakistan and peers plotted (indices/weighted average spreads against benchmark US treasury).
- Interest rates (July 2008–March 2017): Lending rate in the banking system, KIBOR (3-month), Treasury bills (3-month), Deposit rate in the banking system shown in percent per annum.
- Karachi Stock Exchange (KSE) Market Index and Volume (July 2008–April 2017) series presented (volumes in millions of shares, RHS).
- SBP Interest Rate Corridor (July 2013–April 2017): weighted average overnight repo rate, reverse repo, repo, policy rate (percent).

### Banking system soundness and indicators (December 2013–December 2016)
- Regulatory capital to risk-weighted assets: 14.9; 14.8; 15.1; 15.5; 17.1; 17.4; 17.2; 18.2; 17.3; 16.3; 16.1; 16.8; 16.2 (periods listed).
- Tier I capital to risk-weighted assets: series around 12.6–15.0 (periods listed).
- Nonperforming loans (NPLs) to gross loans: 13.3; 13.4; 12.8; 13.0; 12.3; 12.8; 12.4; 12.5; 11.4; 11.7; 11.1; 11.3; 10.1 (periods listed).
- Provisions to NPLs: 78.4; 77.8; 79.5; 77.6; 79.8; 80.2; 80.8; 81.8; 84.9; 83.6; 82.4; 82.7; 85.0 (periods listed).
- Return on assets (after tax): 1.1; 1.3; 1.4; 1.4; 1.5; 1.7; 1.6; 1.5; 1.5; 1.5; 1.3; 1.3; 1.3 (periods listed).
- Return on equity (after tax): 12.4; 14.1; 15.4; 15.9; 16.1; 17.0; 15.9; 15.7; 15.6; 16.3; 14.4; 14.2; 14.4 (periods listed).
- Liquid assets to total assets: 48.6; 48.3; 47.8; 48.3; 49.2; 51.9; 52.3; 53.8; 53.8; 55.9; 55.2; 55.6; 53.7 (periods listed).

### Selected vulnerability indicators and risks (2012/13–2021/22 projections)
- Real GDP growth (factor cost, percent): 3.7; 4.1; 4.1; 4.5; 5.3; 5.5; projected 6.0; 5.7; 5.9; 5.9 (2012/13–2021/22).
- CPI inflation (period average, percent): 7.4; 8.6; 4.5; 2.9; 4.3; 5.0; projected 5.0 (through 2021/22).
- EMBI secondary market spread (basis points, end of period): 703; 501; 444; 559; .......... (series incomplete in source).
- Exchange rate PRs/US$ (end of period): 98.7; 98.6; 101.8; 104.7; ..................
- Gross international reserves (GIR, billions of U.S. dollars): 6.0; 9.1; 13.5; 18.1; 18.5; 18.9; projected 18.9; 18.9; 19.9; 20.4.
- GIR in percent of short-term debt at remaining maturity (RM): 75.4; 105.7; 189.9; 238.3; 181.7; 264.6; 183.8; 162.3; 206.7; 148.1 (2012/13–2021/22).
- Total gross external debt (percent of GDP): 26.3; 26.8; 24.1; 26.1; 26.6; 27.6; 28.1; 27.6; 27.5; 26.8.
- Total gross external debt in percent of exports: 193.2; 215.2; 217.4; 266.6; 294.4; 297.4; 297.1; 283.2; 276.0; 270.7.
- Gross external financing requirement (in billions of U.S. dollars): 9.1; 10.8; 9.1; 10.1; 17.2; 16.2; 21.0; 26.5; 26.8; 31.3.
- General government and government guaranteed debt (incl. IMF, percent of GDP): 66.7; 65.7; 65.7; 70.0; 69.1; 67.6; projected 66.1; 64.1; 62.6; 60.9.
- Net general government debt (incl. IMF, percent of GDP): 60.1; 58.0; 58.2; 61.2; 60.3; 58.9; projected 57.5; 55.6; 54.2; 52.5.

_Italic: Source: IMF staff presentation and tables, Pakistan country material (figures and tables as provided)._

### Annex I. Macroeconomics of Pakistan’s Quest for Energy and

### Annex I. Macroeconomics of Pakistan’s Quest for Energy and CPEC

### Scope and scale of investments
- CPEC is a large package of investment projects potentially totaling about $55 billion (19 percent of FY 2015/16 GDP) over the next decade.
- Analysis is based on realization of:
  - 19 CPEC projects comprising $17.7 billion in the energy sector and $5.9 billion in infrastructure;
  - several non-CPEC energy sector projects totaling $25.4 billion that are in advanced planning stages or implementation.

### Financing modalities
- CPEC infrastructure and transport projects: long term concessional government borrowing from China.
- CPEC energy projects: foreign direct investment and commercial borrowing from Chinese financial institutions, either by majority foreign-owned joint ventures or Chinese investors.
- Non-CPEC energy projects: a mix of private domestic financing, private commercial financing, and government concessional borrowing from international financial institutions.

### Expected macroeconomic and sectoral impacts
- Power capacity and fuel mix:
  - Planned expansion could eliminate Pakistan’s 6GW generation capacity gap in 2016 as early as end-2018.
  - Pakistan’s excessive reliance on furnace oil would be significantly reduced (as projects come online and the fuel mix shifts).
- GDP impact (three stages):
  - Construction stage and power generation (direct contribution) could add about $13 billion to Pakistan’s GDP in the next seven years (4.7 percent of FY 2015/16 GDP).
  - Second-round effects (productivity gains, lower costs, improved trade connectivity) expected to accrue gradually and could lead to a significant long-run contribution depending on supportive factors.

### Balance of payments (BoP) implications
- Medium-term BoP outflows will arise from loan repayment, profit repatriation, and imports of input fuel associated with project operation.
- Expected BoP outflows are moderated by savings from displacement of oil in the fuel mix.
- Outflows are expected to rise over the next several years, peaking at about $3.5–$4.5 billion by FY 2024/25 (1.2–1.6 percent of FY 2015/16 GDP), and gradually declining thereafter.

### Policy recommendations to realize benefits while maintaining external stability
- Build up foreign exchange reserves to cushion the period of increased BoP outflows.
- Pursue strong and sustained reforms to raise exports by improving competitiveness and the business climate to maintain long-term external sustainability.
- Bring the power distribution sector to full cost recovery to help secure long-term sustainability of energy projects.
- Contain fiscal costs by:
  - Limiting tax exemptions;
  - Maintaining a supportive environment for all investments;
  - Gradual phasing in of new external commitments.
- Ensure complementary supportive factors to capture second-round effects on growth (productivity, lower costs, improved trade connectivity).

*Source: Annex I. Macroeconomics of Pakistan’s Quest for Energy and CPEC (IMF staff analysis).*

### Annex V. Public and External Debt Sustainability

### Annex V. Public and External Debt Sustainability

### Current public debt position
- Public and publicly guaranteed debt increased to 70 percent of GDP in FY 2015/16.
- Public debt excluding guarantees rose to about 67½ percent of GDP in FY 2015/16.
- Net public debt increased to 61 percent of GDP.
- Drivers of the increase: a relatively low GDP deflator, debt creation to allow for a rise in government bank deposits by 1.2 percent of GDP, and moderate depreciation of the rupee against the U.S. dollar.
- Note: The net public debt is defined as gross public debt less government deposits with banks.

### Baseline projections and scenarios
- Public and publicly guaranteed debt is projected to decline to 61 percent of GDP by 2022.
- Public debt excluding guarantees is projected to decline to about 58½ percent of GDP by 2022.
- The projected decline is driven by fast real GDP growth, projected to further improve to 6 percent in the medium term as the global economy recovers and CPEC projects start to bear fruits.
- Adverse shocks could raise debt ratios:
  - Shocks to economic growth and the primary balance could lead to higher debt ratios.
  - A combined macro-fiscal shock could lead to public debt ratios well above 70 percent.
- Contingent liabilities from restructuring of loss-making PSEs represent additional fiscal risks.

### Financing needs and vulnerability indicators
- Gross financing needs are expected to decline but remain high throughout the projection period.
- Gross financing needs are projected to stay elevated and gradually decline to 23 percent of GDP.
- The elevated gross financing needs are largely accounted for by loan amortization, pointing to potential rollover risk.
- The shares of short-term and foreign exchange-denominated debt remain between the lower and upper early warning thresholds.

### Fiscal framework and policy recommendations
- The baseline gross public debt path violates the limits on public debt levels set in the revised Fiscal Responsibility and Debt Limitation (FRDL) Act.
- The projected public debt trajectory is above the FRDL limit of 60 percent of GDP on the general government debt (excluding guarantees) until FY 2017/18 and above the planned gradual transition toward 50 percent of GDP over a 15-year period.
- To improve public debt sustainability and build sufficient fiscal buffers, sustained fiscal consolidation is needed.
- Fiscal consolidation efforts should be strengthened with:
  - Clearly identified measures.
  - A strong resolve to push reforms in tax administration and public debt management.
- Strengthening the fiscal responsibility framework will help establish credibility, strengthen debt sustainability, and build buffers to respond to adverse shocks.

*Annex V. Public and External Debt Sustainability — IMF country report content unit*

### 4.      The external DSA shows that the projected path for external debt is sustainable. Gross

### 4.      The external DSA shows that the projected path for external debt is sustainable. Gross

### Key findings
- Gross external debt has gradually increased to 26 percent of GDP and is expected to inch up further, peaking at about 28 percent of GDP in 2019, before gradually declining over the medium term.
- The increase is consistent with rising gross external financing needs, which are expected to peak at close to 7½ percent of GDP in 2020.
- Bound and stress tests suggest that the external debt-to-GDP ratio is resilient to adverse shocks.
- While sensitive mostly to current account and exchange rate shocks, external debt would not exceed 41½ percent of GDP under any scenario.

### Baseline projections (External debt and related flows)
- Baseline: External debt (in percent of GDP), 2012–2022:
  - 2012: 29.2
  - 2013: 26.3
  - 2014: 26.8
  - 2015: 24.1
  - 2016: 26.1
  - 2017: 26.8
  - 2018: 27.8
  - 2019: 28.3
  - 2020: 27.8
  - 2021: 27.8
  - 2022: 27.1
- Change in external debt (in percent of GDP), 2012–2022:
  - 2012: -1.9
  - 2013: -2.8
  - 2014: 0.4
  - 2015: -2.7
  - 2016: 2.1
  - 2017: 0.7
  - 2018: 1.0
  - 2019: 0.5
  - 2020: -0.4
  - 2021: -0.1
  - 2022: -0.7
- Identified external debt-creating flows (4+8+9) (in percent of GDP), 2012–2022:
  - 2012: 0.3
  - 2013: -0.2
  - 2014: -0.6
  - 2015: -1.8
  - 2016: 0.0
  - 2017: 1.0
  - 2018: 1.0
  - 2019: 0.8
  - 2020: 0.6
  - 2021: 0.3
  - 2022: 0.3
- Current account deficit, excluding interest payments (in percent of GDP), 2012–2022:
  - 2012: 1.4
  - 2013: 0.5
  - 2014: 0.6
  - 2015: 0.3
  - 2016: 0.4
  - 2017: 2.4
  - 2018: 2.4
  - 2019: 2.6
  - 2020: 2.5
  - 2021: 2.2
  - 2022: 2.1
- Deficit in balance of goods and services (in percent of GDP), 2012–2022:
  - 2012: 8.4
  - 2013: 7.3
  - 2014: 7.9
  - 2015: 7.5
  - 2016: 7.7
  - 2017: 9.2
  - 2018: 9.2
  - 2019: 9.2
  - 2020: 8.8
  - 2021: 8.2
  - 2022: 7.8
- Exports (in percent of GDP), 2012–2022:
  - 2012: 13.3
  - 2013: 13.6
  - 2014: 12.4
  - 2015: 11.1
  - 2016: 9.8
  - 2017: 9.1
  - 2018: 9.3
  - 2019: 9.5
  - 2020: 9.8
  - 2021: 10.1
  - 2022: 10.0
- Imports (in percent of GDP), 2012–2022:
  - 2012: 21.7
  - 2013: 20.9
  - 2014: 20.3
  - 2015: 18.5
  - 2016: 17.5
  - 2017: 18.3
  - 2018: 18.5
  - 2019: 18.7
  - 2020: 18.6
  - 2021: 18.3
  - 2022: 17.8
- Net non-debt creating capital inflows (negative) (in percent of GDP), 2012–2022:
  - 2012: -0.3
  - 2013: -0.5
  - 2014: -0.7
  - 2015: -0.3
  - 2016: -0.7
  - 2017: -0.7
  - 2018: -0.8
  - 2019: -1.1
  - 2020: -1.2
  - 2021: -1.3
  - 2022: -1.3
- Automatic debt dynamics (in percent of GDP), 2012–2022:
  - 2012: -0.8
  - 2013: -0.1
  - 2014: -0.6
  - 2015: -1.8
  - 2016: 0.2
  - 2017: -0.7
  - 2018: -0.5
  - 2019: -0.7
  - 2020: -0.6
  - 2021: -0.6
  - 2022: -0.5
- Contribution from nominal interest rate (in percent of GDP), 2012–2022:
  - 2012: 0.7
  - 2013: 0.6
  - 2014: 0.6
  - 2015: 0.7
  - 2016: 0.8
  - 2017: 0.6
  - 2018: 0.9
  - 2019: 0.9
  - 2020: 0.9
  - 2021: 0.9
  - 2022: 1.0
- Contribution from real GDP growth (in percent of GDP), 2012–2022:
  - 2012: -1.1
  - 2013: -1.0
  - 2014: -1.0
  - 2015: -1.0
  - 2016: -1.1
  - 2017: -1.3
  - 2018: -1.4
  - 2019: -1.6
  - 2020: -1.5
  - 2021: -1.5
  - 2022: -1.5
- Contribution from price and exchange rate changes (in percent of GDP), 2012–2022:
  - 2012: -0.4
  - 2013: 0.3
  - 2014: -0.2
  - 2015: -1.5
  - 2016: 0.5
  - 2017–2022: "..." (document indicates ellipses for later years)
- Residual, including change in gross foreign assets (2-3) (in percent of GDP), 2012–2022:
  - 2012: -2.1
  - 2013: -2.7
  - 2014: 1.1
  - 2015: -0.9
  - 2016: 2.1
  - 2017: -0.4
  - 2018: 0.0
  - 2019: -0.4
  - 2020: -1.1
  - 2021: -0.3
  - 2022: -1.0

### External financing needs and indicators
- Gross external financing need (in billions of US dollars), 2012–2022:
  - 2012: 9.1
  - 2013: 9.1
  - 2014: 10.8
  - 2015: 9.1
  - 2016: 10.1
  - 2017: 17.2
  - 2018: 16.2
  - 2019: 21.0
  - 2020: 26.5
  - 2021: 26.8
  - 2022: 31.3
- Gross external financing need (in percent of GDP), 2012–2022:
  - 2012: 4.0
  - 2013: 3.9
  - 2014: 4.4
  - 2015: 3.4
  - 2016: 3.6
  - 2017–2022: 5.8, 5.2, 6.3, 7.4, 6.9, 7.4 (10-Year figures referenced in table)
- External debt-to-exports ratio (in percent), 2012–2022:
  - 2012: 220.2
  - 2013: 193.2
  - 2014: 215.2
  - 2015: 217.4
  - 2016: 266.6
  - 2017: 294.4
  - 2018: 297.4
  - 2019: 297.1
  - 2020: 283.2
  - 2021: 276.0
  - 2022: 270.7
- Debt-stabilizing non-interest current account (in percent of GDP): -2.6

### Stress tests and scenario outcomes
- Individual shocks modeled include: Primary Balance Shock; Real GDP Growth Shock; Real Interest Rate Shock; Real Exchange Rate Shock; Combined Shock; Contingent Liability Shock.
- Stress test results (summary):
  - Under historical and hypothetical shocks (including combined and large depreciation scenarios), the external debt-to-GDP ratio remains below the worst-case bound of 41½ percent of GDP stated for the scenarios.
  - Shocks identified as most binding are current account and exchange rate shocks.
- Bound tests and historical scenario boxes show baseline average external debt at 27 (labelled in figures) and alternative scenario averages varying by shock (document figures: Baseline 27, various scenarios up to 32–40 in boxes depending on shock).

### Underlying macroeconomic assumptions (selected)
- Real GDP growth (in percent), baseline projections:
  - 2017: 5.3
  - 2018: 5.5
  - 2019: 6.0
  - 2020: 5.7
  - 2021: 5.9
  - 2022: 5.9
- GDP deflator in US dollars (change in percent), sample values:
  - 2012: 1.2
  - 2013: -1.2
  - 2014: 0.9
  - 2015: 6.0
  - 2016: -2.0
  - 2017: 3.7
  - 2018: 6.4
  - 2019–2022: 0.3, 0.5, 1.0, 1.6, 2.2, 3.1 (as shown in table)
- Nominal external interest rate (in percent), sample values:
  - Historical averages and projections include values such as 2.4, 2.2, 2.5, 3.0, 3.3, 3.3 and projected 2.6, 3.4, 3.3, 3.4, 3.6, 3.8
- Growth of exports and imports (US dollar terms, in percent), sample projections:
  - Growth of exports (US dollar terms, in percent): projections include -1.9, 8.9, 8.9, 11.0, 10.9, 8.4 for later years.
  - Growth of imports (US dollar terms, in percent): projections include 10.6, 7.2, 8.3, 6.7, 6.6, 6.1 for later years.
- Current account balance, excluding interest payments (in percent of GDP), sample projections:
  - 2017: -2.4
  - 2018: -2.4
  - 2019: -2.6
  - 2020: -2.5
  - 2021: -2.2
  - 2022: -2.1

### Risk assessment and realism checks
- Pakistan Public DSA Risk Assessment uses benchmarks (e.g., gross financing needs 15% of GDP; external financing requirement 5% and 15% of GDP; EMBIG basis points) to color-code risks.
- Forecast track record charts show historical forecast errors for Real GDP Growth, Primary Balance, and Inflation (Deflator) with percentile ranks and median errors (document reports metrics like Pakistan median forecast error, 2007-2015: 0.20 for Real GDP Growth; -2.04 for Primary Balance; 1.06 for Inflation (Deflator) in the figures).
- Evolution of predictive densities and percentile bands are presented for gross nominal public debt and public gross financing needs across projections and stress-test distributions.

*Source: IMF staff.*

### 1.      Pakistan is among the largest recipients of World Bank financial assistance. The World Bank

### Pakistan: World Bank, ADB, Statistical Issues, and Executive Director Statement (cr17212)

### World Bank Group engagement and portfolio
- The World Bank Group program in Pakistan consists of: IBRD lending, concessional IDA credits, Trust Funds and Grants, Multi-Donor Trust Fund (MDTF) for Khyber Pakhtunkhwa (KP), Federally Administered Tribal Areas (FATA) and Balochistan, The Accelerated Growth and Reform (TAGR) from DFID, IFC investments, and MIGA guarantees, along with complementary analytical and advisory services.
- The Pakistan Portfolio (IDA, IBRD and MDTF) as of April 30, 2017, has 37 active projects.
- Over the past three years the World Bank has provided over US$3 billion budget financing in support of reforms.

### Country Partnership Strategy (CPS) and strategic priorities
- CPS timeframe: fiscal years 2015 through 2019 (endorsed May 1 2014).
- CPS anchored in Government’s framework of 4Es: Energy, Economy, Extremism and Education; and initial priorities of Vision 2025.
- Strategy design: built-in flexibility to allow for quick reallocation of resources for unforeseen needs or emergencies.
- Four strategic pillars / result areas and cross-cutting theme:
  - Transforming the energy sector: policy reforms and large investments to reduce load shedding, expand low-cost generation and supply, improve governance and cut losses.
  - Supporting private sector development: strengthen business environment, improve competitiveness and productivity of farms and businesses, make cities growth friendly to support productive and quality jobs.
  - Reaching out to the underserved, neglected, and poor: targeted support for poorer districts and vulnerable groups (e.g., women and youth); micro, small and medium enterprises particularly in fragile and crises-affected provinces/regions; support for resilience and adaptation to climate change.
  - Accelerating improvements in public service delivery: support efforts for increasing revenues at federal and provincial levels and set more ambitious targets to impact education and health.
  - Leveraging regional markets (cross-cutting): focus on energy and trade toward an integrated electricity market in South Asia with power transmission links to Central Asia and India; opportunities from cross-border trade to contribute to growth and stability.

### IFC and MIGA engagement
- IFC focus areas:
  - Mobilizing investments in infrastructure, energy (including renewable power).
  - Expanding access to finance to MSMEs.
  - Helping create jobs.
  - Advisory services active in enhancing access to finance for MSMEs, capacity building of small businesses, improving corporate governance, creating a better business environment, and promoting clean energy.
- MIGA involvement:
  - Has provided guarantees in hydropower and microfinance.
  - Strategy seeks to support investments into IDA countries, South-South investments, complex infrastructure projects, and investments into conflict-affected areas.

### Coordination with the IMF and reform support
- WBG has closely coordinated development policy financing support with the IMF Program in Pakistan, focusing on structural reforms in revenue mobilization, SOEs, private sector development, financial sector and energy sector to complement the 2013-2016 IMF program.

### IBRD/IDA financial operations since FY2006 (US$ million)
- Commitments — IBRD:
  - FY06: 315
  - FY07: 100
  - FY08: 174
  - FY09: 0
  - FY10: 0
  - FY11: 261
  - FY12: 500
  - FY13: 0
  - FY14: 0
  - FY15: 0
  - FY16: 400
- Commitments — IDA:
  - FY06: 1183
  - FY07: 885
  - FY08: 371
  - FY09: 1610
  - FY10: 300
  - FY11: 1292
  - FY12: 1290
  - FY13: 744
  - FY14: 1634
  - FY15: 1351
  - FY16: 1460
- Disbursements — IBRD:
  - FY06: 149
  - FY07: 154
  - FY08: 56
  - FY09: 91
  - FY10: 86
  - FY11: 35
  - FY12: 92
  - FY13: 85
  - FY14: 121
  - FY15: 35
  - FY16: 110
- Disbursements — IDA:
  - FY06: 1063
  - FY07: 1035
  - FY08: 267
  - FY09: 848
  - FY10: 698
  - FY11: 772
  - FY12: 565
  - FY13: 450
  - FY14: 1533
  - FY15: 1129
  - FY16: 1360
- Repayments — IBRD:
  - FY06: 297
  - FY07: 273
  - FY08: 295
  - FY09: 273
  - FY10: 225
  - FY11: 172
  - FY12: 157
  - FY13: 162
  - FY14: 166
  - FY15: 156
  - FY16: 147
- Repayments — IDA:
  - FY06: 117
  - FY07: 170
  - FY08: 143
  - FY09: 181
  - FY10: 165
  - FY11: 169
  - FY12: 190
  - FY13: 182
  - FY14: 297
  - FY15: 247
  - FY16: 255

### Relations with the Asian Development Bank (ADB)
- Cumulative ADB assistance since 1968: $27.9 billion (through the concessional Asian Development Fund window and the Ordinary Capital Resources window).
- ADB Country Partnership Strategy: covering 2015–19 (endorsed August 2015).
- ADB strategic thrust: improve connectivity, productivity, and access to markets and public services; focus on infrastructure development and institutional reforms; greater emphasis on (i) partnerships and cofinancing, particularly from commercial sources; (ii) disaster risk management; and (iii) a more systematic approach to knowledge solutions.
- Main areas of ADB operations:
  - (i) energy (sector reforms, energy efficiency, power generation, transmission, distribution, and renewable energy development);
  - (ii) transport and logistics;
  - (iii) irrigation and water resource management;
  - (iv) urban services;
  - (v) public sector management (including PPPs, public sector enterprise reforms, and social protection);
  - (vi) finance (long-term infrastructure finance and financial inclusion).
- ADB program instruments: policy-based lending, multi-tranche financing facilities, stand-alone projects, TA loans, TA grants, project design facilities, knowledge products and services, and policy dialogue.
- Pakistan’s active public sector portfolio as of 31 December 2016: $6.38 billion, comprising 49 loans and 7 grants for 37 investment projects and 27 TA projects of $50.8 million (figures exclude ADB’s policy-based support).
- Energy sector program: five annual sub-programs; first sub-program (DPC-I) of $400 million approved and disbursed in 2014; second sub-program (DPC-II) $400 million signed November 2015 and disbursed December 2015; approval of the third sub-program ($300 million) scheduled for June 2017.
- Portfolio composition by sector (active public sector portfolio):
  - Energy: about 43 percent
  - Transport: 25 percent
  - Public sector management: 15 percent
  - Irrigation and water resource management: 12 percent
  - Multi-sector emergency projects: 3 percent
  - Urban infrastructure and services: 2 percent
- ADB private sector operations (as of 30 September 2016):
  - Cumulative private sector approvals: $1.25 billion
  - Total outstanding balance of projects: $624 million
  - Focus: infrastructure and finance (renewable energy development, natural resources development, reform support, and energy security).
  - Trade Finance Program: worked with twelve banks on 3,750 trade transactions of over $10.7 billion, 53 percent of which was co-financed by the private sector.

### Statistical issues (as of May 17, 2017)
- General assessment: Data provision has some shortcomings, but is broadly adequate for surveillance.
- National accounts:
  - In 2013, FBS completed rebasing and revising national accounts from fiscal year 1999/2000 to 2005/06 to align with the 2008 System of National Accounts (2008 SNA).
  - Current national accounts series goes back only to 2005/06; FBS working to produce backward linking to 1999–2000.
  - FBS has begun developing quarterly national accounts (QNA).
  - FBS compiled and started releasing quarterly employment/unemployment data (first release February 2011 with five years of historical data).
  - In March 2017, STA conducted a technical assistance (TA) mission to support improvement of the QNA.
- Price statistics:
  - FBS produces CPI, WPI, and SPI. CPI and WPI compiled monthly; SPI compiled weekly (53 essential commodities).
  - Need to replace WPI with a producer price index (PPI).
  - COICOP introduced with August 2011 index; TA provided to further improve CPI methodology and update weights.
- Government finance statistics:
  - Concepts and definitions broadly based on GFSM 1986; scope limited (does not cover extra budgetary funds).
  - Classification and sectorization follow GFSM 1986 standards to a limited extent; expenditure classification deviates from GFSM 1986.
  - Basis of recording GFS is on, or close to, a cash basis; corrective transactions not necessarily made in original period.
  - Authorities intend to adopt GFSM 2001 methodology over the medium term; have compiled with staff assistance a fiscal table in GFSM 2001 presentation.
  - Budgetary central government operations data regularly reported for GFS Yearbook using GFSM 2001 framework (last available year 2014); no data reported on transactions in nonfinancial and financial assets and liabilities.
  - Principal GFS issue: reduce size of statistical discrepancy between financial and non-financial accounts reported to MCD.
- Monetary statistics:
  - Broadly in line with the MFSM and MFS Compilation Guide.
  - SBP has reported Standardized Report Forms (1SR, 2SR, 5SR) to IFS.
  - Early 2017 STA technical assistance for expanding compilation of MFS.
  - MMFs expected to be included in depositary corporation sector by mid-2017.
  - OFCs survey expected to be compiled and reported to STA by end-2017 covering Non-MMFs, pension funds, and financial auxiliaries.
  - Insurance corporations subsector to be added to OFCs by mid-2018.
  - Pakistan reports all core Financial Soundness Indicators (FSIs) for the deposit takers (DT) sector and 16 out of 28 FSIs of the encouraged set for DT, non-financial corporations and real estate prices; these FSIs are disseminated in IMF’s FSI website.
- External sector statistics:
  - Since September 2013, SBP reports quarterly balance of payments (BoP) statistics with data beginning December 2005 in line with BPM6.
  - In October 2015, SBP started transmitting BPM6-based annual and quarterly IIP with data beginning December 2014.
  - Some consistency issues between BoP and IIP remain to be addressed.
  - Pakistan participates in COFER, CDIS, and CPIS surveys.
  - External debt data are not reported to the World Bank’s Quarterly External Debt Statistics (QEDS) database.
- Data standards and quality:
  - GDDS participant since 2003.
  - ROSC—Data Module, response by authorities, and Detailed Assessment using DQAF published December 2004; ROSC reassessment on monetary statistics in November 2006 (published February 2007); update to ROSC on fiscal transparency published April 2008.

### Table of Common Indicators Required for Surveillance (selected entries, as of May 2016 / May 2017)
- International Reserve Assets and Reserve Liabilities of the Monetary Authorities:
  - Date of latest observation: March 2017
  - Date received: Apr. 2017
  - Frequency of Data: M
  - Frequency of Reporting: M
  - Frequency of publication: M
- Reserve/Base Money:
  - Date of latest observation: March 2017
  - Date received: May 2017
  - Frequency: M / M / M
- Broad Money:
  - Date of latest observation: March 2017
  - Date received: May 2017
  - Frequency: M / M / M
- Central Bank Balance Sheet:
  - Date of latest observation: March 2017
  - Date received: May 2017
  - Frequency: M / M / M
- Consolidated Balance Sheet of the Banking System:
  - Date of latest observation: March 2017
  - Date received: May 2017
  - Frequency: M / M / M
- Interest Rate:
  - Date of latest observation: April 2017
  - Date received: May 2017
  - Frequency: M / M / M
- Consumer Price Index:
  - Date of latest observation: April 2017
  - Date received: May 2017
  - Frequency: M / M / M
- Revenue, Expenditure, Balance and Composition of Financing — General Government:
  - Date of latest observation: March 2017
  - Date received: May 2017
  - Frequency: Q / Q / Q
- GDP/GNP:
  - 2016/17 est.
  - Date received: May 2017
  - Frequency: A / A / A

### Statement by Jafar Mojarrad, Executive Director for Pakistan (June 14, 2017) — key excerpts
- Authorities' view: thank Fund staff for constructive engagement during 2017 Article IV discussions and high-quality report and Selected Issues paper; authorities broadly agree with staff assessment and policy advice.
- Recent economic developments and outlook:
  - Program supported by the three-year Extended Fund Facility (EFF) brought significant gains and enhanced economic and financial resilience.
  - Real GDP growth reached projected 5.3 percent in FY 2016/17 (the highest in ten years).
  - FDI increased reflecting growing investor confidence.
  - Buffers against external shocks were fortified.
  - Standards of living improved markedly.
  - Prudent monetary policy kept inflation low.
  - Fiscal deficit was slashed almost in half, over three years.

*Source: IMF staff report cr17212 (PDF chapter/section).*

### 4.6 percent of GDP in FY 2015/16, and should decline marginally to 4.5 percent in

### cr17212 - 4.6 percent of GDP in FY 2015/16, and should decline marginally to 4.5 percent in

### Macroeconomic outlook
- Fiscal deficit was 4.6 percent of GDP in FY 2015/16, and should decline marginally to 4.5 percent in FY 2016/17, on the back of significantly higher revenue and continued stringent control on current expenditure, including rationalization and better targeting of subsidies.
- Development expenditures and spending on social safety nets have been on a rising trend to ensure the sustainability of long term growth.
- The stock market in Pakistan has performed strongly, and MSCI has reclassified Pakistan from frontier to emerging market, effective June 2017.
- Over the medium term, the authorities expect GDP growth to accelerate to 7 percent, supported by strong CPEC-related investment, positive externalities from better infrastructure and energy availability, and an overall improvement in the security situation.
- Inflation is expected to remain subdued in the 4.0-4.5 percent range.
- The external current account deficit is projected to increase to 3 percent of GDP in FY 2016/17, mainly due to higher oil prices and FDI-related imports, but should be contained over the medium term on expectations of a slowdown in import growth and stronger recovery in exports and remittances, with increasing contribution of non-debt creating inflows to its financing.
- Amid rising current account deficit and broadly stable exchange rate, foreign reserves have declined, but going forward will be maintained at comfortable levels to safeguard against external shocks.

### Fiscal policy
- Fiscal consolidation, while accommodating higher development spending, remains a key priority.
- Authorities committed to deficit reduction through revenue mobilization and rationalization of current expenditure, while providing adequate space for growth-enhancing spending and protection of vulnerable population through targeted social spending.
- Tax-to-GDP ratio increased from 10 percent in FY 2012/13 to an estimated 12.8 percent in the current year.
- Measures by the Federal Board of Revenue include assembling a comprehensive database on potential taxpayers to improve tax audit and enhance compliance; these administrative measures will be expanded and strengthened.
- The draft FY 2017/18 budget targets a fiscal deficit of 4.2 percent of GDP on the back of strong increases in tax and non-tax revenue and by limiting growth of current expenditure.
- Development expenditure is budgeted to rise by 2.1 percent of GDP to support medium term growth.
- The amended Fiscal Responsibility and Debt Limitations Act (2016) mandates:
  - bring the public debt to GDP ratio to 60 percent by June 2018 and further to 50 percent over the next 15 years; and
  - cap the federal budget deficit (excluding foreign grants) at 4 percent of GDP for the next three years and 3.5 percent thereafter.
- Pakistan's net public debt-to-GDP ratio stood at 61 percent in June 2016.
- A Fiscal Consolidation Committee has been set up to consider ways for synchronizing fiscal policy and strengthening budgeting and expenditure monitoring across all levels of government.
- Authorities committed to expand coverage and benefits under the Benazir Income Support Program (BISP); initiated a program providing BISP beneficiaries on graduation a one-time cash grant of PRs 50,000 (about US$500), initially extended to 250,000 families, to start own businesses.

### Monetary and external sector policies
- Monetary policy will continue to target price stability in a forward-looking manner.
- The current policy rate—kept unchanged since May 2016—has been positive in real terms, containing inflation below the SBP target.
- The central bank remains vigilant and stands ready to respond to changes in the macroeconomic environment and inflationary pressures.
- Positive real interest rates have not hampered private sector credit growth; credit to the private sector continues to grow at a healthy pace, backed by strong deposit growth.
- Growth supported expansion in textile and garments, chemicals, sugar, construction, and power industries; consumer financing has been buoyant and expected to continue in FY 2017/18.
- An independent monetary policy committee has been constituted, fully empowered to decide on appropriate monetary policy stance.
- Authorities intend to place before Parliament legislative measures based on SBP proposals—drawing on the Fund’s safeguards assessment recommendations—to further enhance central bank autonomy.
- Authorities recognize that a durable and strong export recovery is key to strengthening Pakistan’s external sector position to meet the upcoming debt payments.
- Authorities note staff indication of a moderate overvaluation of the rupee but believe the extent of overvaluation is less than estimated by staff; attribute recent rise in the current account deficit largely to petroleum price increase and CPEC-related imports.
- Authorities would be willing to consider greater exchange rate flexibility, as long as there is a need and appropriate conditions are in place.
- Initiatives to promote exports include sales tax zero rating for exports and duty drawbacks, reduction in mark-up rates on Export Refinance Facility and Long Term Finance Facility.
- The Strategic Trade Policy Framework 2015-18 aims to promote regional trade with focus on product sophistication and diversification, greater market access, institutional development, and trade facilitation.
- Most recent trade data suggest a recovery in exports.

### Financial sector
- Overall performance of the banking sector remains robust.
- Bank solvency is strong; capital adequacy ratios are above prudential minimums.
- Gross NPLs to total loans ratio declined to an 8-year low of 10 percent by end-2016, with provisions reaching 85 percent.
- Regulatory practices are now mostly aligned with best international practices.
- Authorities will continue phased implementation of Basel III regulatory norms with a view to completing it by 2019.
- Authorities will continue efforts to strengthen the AML/CFT framework in line with international standards.
- Authorities prioritize financial deepening and inclusion; SBP pursuing a National Financial Inclusion Strategy covering regulations, development of market information, and infrastructure and capacity building.

### Structural reforms
- Continued structural reforms are crucial for improving competitiveness and enhancing growth and job creation.
- Power sector reform has been a hallmark of the reform agenda; projects—some in the context of the CPEC—are underway to double the country’s power generation capacity within a few years.
- The large stock of power sector arrears was eliminated in just two years; monitoring of power distribution companies was greatly enhanced.
- Authorities will remain vigilant that power sector arrears will not accumulate again as generation capacity increases.
- Important strides have been made in gas sector reform.
- Public sector enterprise (PSE) reform and privatization are priorities to reduce fiscal costs and contingent liabilities and to enhance efficiency; aggregate annual losses of PSEs remain modest and have been declining.
- Since FY 2013/14 authorities have enacted a number of legislative measures to establish a more business friendly legal environment; notably, the Companies Law 2017 (replacing the Companies Ordinance of 1984) to promote corporatization by easing business starts and protecting private investment.
- Authorities have joined the ‘Open Government Partnership’ initiative and have already met virtually almost all of its criteria.
- Pakistan is a signatory to the OECD’s Multilateral Convention on Mutual Administrative Assistance in Tax Matters.
- Authorities’ commitment to promote Pakistan’s business climate is reflected in improved rankings in the World Bank’s “Doing Business” and recognition as one of the top ten reformers.

### Conclusion and policy requests
- Authorities are fully committed to consolidating the economic and structural gains achieved under the EFF-supported program.
- They request Fund approval of the exchange restriction and multiple currency practice arising from the 100 percent cash margin requirements for non-essential goods imports.
- They are committed to removing this requirement within one year.
- Authorities express gratitude to the Fund management and staff for their continuous support and valuable advice, and look forward to continued cooperation with the Fund.

*Source: cr17212 - 4.6 percent of GDP in FY 2015/16, and should decline marginally to 4.5 percent in (IMF).*

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_Source: https://www.imf.org/-/media/files/publications/cr/2017/cr17212.pdf_