## IMF staff report: EXECUTIVE SUMMARY (1pakea2024002)

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### Recent developments
- Political:
  - New coalition government took office on March 11; committed to continue implementing policies in line with the SBA.
- Real economy and activity:
  - Real GDP: +1.0 percent yoy in Q2; Q1 revised to +2.5 percent yoy.
  - Agricultural output: +5.1 percent yoy in Q2.
  - Large-scale manufacturing index: +1.8 percent yoy in January 2024.
  - Industrial activity: -0.8 percent yoy in Q2.
  - Services activity: 0.0 percent yoy in Q2.
- Inflation and monetary policy:
  - Headline inflation: 20.7 percent yoy in March.
  - Food inflation: 16.8 percent.
  - Core inflation: 15.4 percent.
  - Policy rate: unchanged at 22 percent (MPC meeting March 18).
- External and FX:
  - SBP completed transition of the interbank spot market to electronic trading with anonymized bids.
  - Premium between interbank and open market rates negligible; no evidence of parallel market pressures.
  - Gross reserves: around US$8 billion.
  - Current account deficit: around US$1 billion over July–February FY24 (versus US$3.8 billion over same period in FY23).
  - EMBIG spreads: around 750 bps (down from 1,400 bps in early January).
  - Real effective exchange rate: appreciated somewhat since the beginning of the year; nominal exchange rate broadly stable at around PRs 280 per US$.
- Banking sector:
  - Banks’ sovereign exposure: increased from 48 percent of assets at end-FY21 to 57.4 percent at end-January 2024.
  - Capital adequacy ratio (CAR): 19.7 percent (end-December 2023); regulatory minimum 11.5 percent (including capital conservation buffer).
  - NPLs: 7.6 percent; provisioning: 92.7 percent.
  - Three small banks (out of 32) report CAR below regulatory minimum.
- Fiscal and public finances:
  - General government primary surplus: 1.8 percent of GDP in FY24H1, exceeding projections by 0.4 percent of GDP.
  - Strong revenue performance driven by PDL, excise, and direct tax revenues; federal PSDP significantly under-executed.
  - Provincial overspending: PRs 136 billion in FY24H1 (Punjab curtailed FY24Q2 expenditures).
- Energy sector:
  - Power circular debt (CD) stock: PRs 2.6 trillion (2.5 percent of GDP), broadly flat since October 2023.
  - Gas tariff increase: average 24 percent on February 15; progressive rate structure retained to protect vulnerable residential consumers; fertilizer prices equalized; modest increases for captive power and some industrial users.

### Program performance and conditionality
- SBA status and compliance:
  - 9-month Stand-by Arrangement approved on July 12, 2023; program is on track.
  - All seven quantitative performance criteria (QPCs) for end-December 2023 met, including floors and ceilings across SBP NIR, SBP NDA, FX swap/forward book, net government budgetary borrowing from SBP, general government primary budget deficit, and government guarantees.
  - Continuous PCs met: zero new flow of SBP credit to the government; zero external public payment arrears.
  - All four indicative targets (ITs) for end-December 2023 met: floors on budgetary health and education spending and FBR net tax revenues; ceilings on net accumulation of tax refund arrears and power sector payment arrears.
  - Structural benchmarks (SBs) met since first review: BISP inflation adjustment; notification of semiannual gas tariff adjustment; development of plan to strengthen SBP internal control systems in lending operations. Continuous SBs met: no new tax amnesties; no new preferential tax treatments or exemptions; average premium between interbank and open market rate kept ≤ 1.25 percent.
  - One missed SB: amending four dedicated SOE laws (end-November 2023) — remains in progress.
- SBA review and financing:
  - Staff supports completion of the review, which would make available SDR 828 million and bring total access to SDR 2,250 million.
  - Program financed with strong multilateral and bilateral support; total SBA purchases to date: 894, 582, and 828 (millions of SDR) corresponding to approval and first and second reviews (total 2,250 SDR).

### Policy priorities and recommendations
- Fiscal policy:
  - Strict adherence to the FY24 fiscal target and further adjustment beyond FY24 essential, while protecting development needs and the social safety net.
  - Continue fiscal consolidation to alleviate external and domestic pressures and ensure fiscal sustainability.
  - Contain primary expenditure to PRs 12,912 billion (12.1 percent of GDP) while preserving space for priority social spending.
  - Use PRs 250 billion budgeted emergency fund to absorb deviations; avoid supplementary grants.
- Exchange rate and monetary policy:
  - Maintain a flexible exchange rate to buffer shocks and rebuild reserves.
  - Keep monetary policy tight to bring inflation to more moderate levels and remain agile to respond if inflation signs reemerge.
  - Eliminate remaining MCP and exchange restriction; deepen interbank FX market and proactively build reserves via interbank purchases as conditions permit.
- Energy sector:
  - Continue regular energy tariff adjustments to keep pace with costs and end creation of circular debt (CD).
  - Undertake broader cost-side and infrastructure reforms to restore energy sector viability (transmission, DISCO performance, captive power, power purchase agreements, conversion of PHPL debt).
- Structural reforms:
  - Further progress on state-owned enterprise (SOE) reform and governance to spur private sector investment, activity, and jobs.
  - Advance privatization (PIA core business bidding by June 2024; likely sale of 51 percent controlling stake) and prioritize divestment proceeds to settle government-guaranteed liabilities (PRs 242 billion of PRs 629 billion to be transferred).
  - Strengthen revenue administration (FBR: 1.1 million new filers; 170,999 new returns through enforcement); expand track-and-trace and digital invoicing; transform FBR into semi-autonomous Revenue Authority (in progress).

### Outlook and risks
- Baseline outlook:
  - Inflation: year-end inflation in FY24 and FY25 revised up modestly due to more gradual slowdown in food inflation than anticipated.
  - FY24 current account deficit projected at US$3.0 billion (0.8 percent of GDP).
  - Staff expects current account deficit to remain around 1½ percent of GDP over the medium term under a flexible exchange rate consistent with efforts to rebuild reserves.
  - End-FY24 debt-to-GDP ratio projected to decrease markedly, driven by fiscal consolidation and ex-post negative real interest rates.
  - With sustained program policies and adequate multilateral and bilateral financial support, public debt would remain sustainable and on a downward path.
- Downside risks (exceptionally high):
  - Political uncertainty and potential resurgence in social tensions could weigh on policy and reform implementation.
  - Policy slippages and lower external financing could undermine debt sustainability and pressure the exchange rate.
  - Delays in post-program external financing would place pressure on banks to finance the government and crowd out the private sector.
  - Geopolitical-driven commodity price shocks, shipping disruptions, or tighter global financial conditions would adversely affect external stability.
- Key projections and indicators (selected):
  - Power CD stock: PRs 2.6 trillion (2.5 percent of GDP).
  - Banks’ sovereign exposure: 57.4 percent of assets (end-January 2024).
  - Gross reserves: around US$8 billion.
  - EMBIG spreads: around 750 bps.
  - FY24H1 primary surplus: 1.8 percent of GDP (exceeding projections by 0.4 percent of GDP).
  - FY24 CAD projection: US$3.0 billion (0.8 percent of GDP).

### Financing, capacity to repay, and enterprise risks
- Financing status:
  - Total delivery of SBA financing commitments in FY24 expected somewhat short of projections: US$4.0 billion out of US$4.6 billion disbursed; some disbursements may spill into FY25.
  - Shortfall compensated by a tighter current account and savings from a debt rearrangement with a major bilateral creditor prior to the first review.
  - Timely delivery of remaining commitments is important given external sector vulnerabilities.
- Capacity to repay the Fund:
  - Fund’s exposure reaches SDR 6,546 million (322 percent of quota, approximately 102 percent of projected gross reserves at end-April 2024) with completion of all purchases under the SBA.
  - Pakistan’s capacity to repay subject to significant risks and depends critically on policy implementation and timely external financing.
  - Exceptionally high risks could jeopardize repayment capacity: delayed adoption of reforms; high public debt and gross financing needs; low gross reserves and SBP’s net FX derivative position; decline in inflows; sociopolitical factors.
- Enterprise risk:
  - SBA poses significant enterprise risks: credit concentration; capacity to repay; reputation and engagement risks; sociopolitical tensions; security situation.
  - Mitigants: newly formed government’s intention to continue policy adjustment; interest in a successor arrangement from the Fund.

### Fiscal policy details and structural conditionality (selected)
- Authorities committed to achieving FY24 general government primary surplus of at least PRs 401 billion (0.4 percent of GDP).
- Floors/ceilings performance (selected test dates, actuals, status):
  - NIR (end-Dec 2023): Actual -12,720 (Met).
  - SBP NDA (end-Dec 2023): Actual 14,319 (Met).
  - SBP swaps/forwards stock (end-Dec 2023): Actual 3,423 (Met).
  - Net government budgetary borrowing from SBP (end-Dec 2023): Actual 3,217 (Met).
  - General government primary budget deficit (cumulative, end-Dec 2023): Actual -1,812 (Met).
  - Government guarantees (stock, end-Dec 2023): Actual 3,748 (Met).
  - Cumulative floor on targeted cash transfers (BISP, end-Dec 2023): Actual 186.1 (Met).
  - Ceiling on power sector payment arrears (flow, July–Dec 2023): Actual 378 (Met).
- Structural benchmarks (selected statuses):
  - Commitment to not grant further tax amnesties: Continuous — Met.
  - Inflation adjustment of Kafaalat (end-Jan 2024): Met.
  - CMU first periodic SOE report (end-Dec 2023): Met.
  - Notification of semiannual gas tariff adjustment (February 15, 2024): Met.
  - Amend Acts of four selected SOEs (end-Nov 2023): Not met.

### Energy sector priorities and performance
- Power sector:
  - Aim to meet FY24 CDMP target of PRs 2.3 trillion (net zero stock accumulation) contingent on timely tariff adjustments, anti-theft efforts, and release of budgeted subsidies.
  - Budgeted subsidies (total PRs 976 billion): about one-third disbursed as of end-January 2024; pending includes tariff differential and other subsidies (PRs 249 billion), arrears penalties (PRs 125 billion), and PHL stock and power producer-related arrears (PRs 255 billion).
  - Targeted reforms: improve transmission and renewable integration; improve DISCO performance via privatization or long-term management concessions; move captive power demand to the grid; revisit power purchase agreements; convert publicly-guaranteed PHPL debt into cheaper public debt.
- Gas sector:
  - Natural gas CD modestly declined to PRs 2,083 billion (2.0 percent of GDP) as of January 2024.
  - Resumption of gas tariff adjustments and timely notifications within required 40-day window critical to prevent further CD flow.
  - Policies to phase out captive power usage, prioritize cheaper gas for most efficient plants, equalize fertilizer company prices, and move toward a weighted average cost of gas (WACOG).

### Social protection, human capital, and governance
- BISP and social protection:
  - BISP FY24 envelope: PRs 472 billion (0.4 percent of GDP).
  - BISP absorbed 300,000 families into Kafaalat UCT in FY24; total enrollment 9.3 million.
  - Benefit adjustment carried out in January (end-Jan 2024 SB).
  - In FY24, 0.9 million families and 1.9 million children enrolled into health and education CCT programs respectively.
  - Target: 20 million households in fully operational dynamic registry by September 2024.
- Governance and anti-corruption:
  - Implement SOE Act and policy framework; operationalize Central Monitoring Unit (CMU); publish subsequent SOE reports with performance benchmarks expected in FY25.
  - Ensure SIFC and SWF operations include transparency and accountability safeguards.
  - Strengthen anti-corruption institutions and AML/CFT measures; consider a comprehensive governance diagnostic assessment.
- Climate resilience:
  - Cabinet adoption of C-PIMA action plan (SB end-Dec 2023) — Met.
  - Develop climate scoring methodology for National Adaptation Plan-aligned projects in PSDP portfolio by September 2024.

### Monitoring, reporting, and TMU highlights
- Authorities will provide all needed data in line with Article VIII, Section 5 of the IMF Articles of Agreement.
- Key reporting frequencies and items (selected):
  - SBP balance sheet summary: Weekly, First Thursday of the following week.
  - Monetary survey: Monthly, Within the first 30 days of each month.
  - International reserves: Daily, The following working day.
  - Detailed interbank spot and forward market transaction statistics: Daily, Within one day.
  - Banking sector stress tests results: Quarterly, Within 60 days.
  - FBR total revenue collected: Monthly, Within seven days of the end of each month.
  - Ministry of Finance external debt and domestic debt composition: Monthly/Quarterly with specified deadlines.
  - Power sector cumulative monthly subsidy position and DISCO performance metrics: Monthly/Quarterly as specified.
- Program exchange rate for TMU: 286.7091 rupee per one U.S. dollar.
- TMU adjustment mechanisms:
  - NIR floor adjusted by cumulative excess/shortfall in cash inflows usable for government budget financing; downward adjustment limited to a maximum of US$2,000 million for December 2023 test date.
  - NDA ceiling adjusted in line with NIR target adjustment with same maximum adjustor limit.

*IMF staff report content unit: 1pakea2024002 — April 8, 2024*

### EXECUTIVE SUMMARY

### EXECUTIVE SUMMARY

### Recent developments
- Political: A new coalition government took office on March 11; it committed to continue implementing policies in line with the SBA.
- Economic activity:
  - Real GDP grew by 1.0 percent yoy in Q2.
  - Q1 GDP growth was revised up to +2.5 percent yoy.
  - Agricultural output: +5.1 percent yoy in Q2.
  - Large-scale manufacturing index: +1.8 percent yoy in January 2024.
  - Industrial activity: -0.8 percent yoy in Q2.
  - Services activity: 0.0 percent yoy in Q2.
- Inflation and monetary policy:
  - Headline inflation: 20.7 percent yoy in March.
  - Food inflation: 16.8 percent.
  - Core inflation: 15.4 percent.
  - Policy rate: unchanged at 22 percent (MPC meeting March 18).
- Foreign exchange and external:
  - SBP completed transition of the interbank spot market to electronic trading with anonymized bids.
  - Premium between interbank and open market rates has remained negligible; no evidence of parallel market pressures.
  - Gross reserves: around US$8 billion.
  - Current account deficit: around US$1 billion over July–February FY24 (versus US$3.8 billion over same period in FY23).
  - EMBIG spreads: around 750 bps (down from 1,400 bps in early January).
  - Real effective exchange rate: appreciated somewhat since the beginning of the year; nominal exchange rate broadly stable at around PRs 280 per US$.
- Banking sector:
  - Banks’ sovereign exposure: increased from 48 percent of assets at end-FY21 to 57.4 percent at end-January 2024.
  - Capital adequacy ratio (CAR): 19.7 percent (end-December 2023); regulatory minimum 11.5 percent (including capital conservation buffer).
  - NPLs: 7.6 percent; provisioning: 92.7 percent.
  - Three small banks (out of 32) report CAR below regulatory minimum.
- Fiscal and public finances:
  - General government achieved a primary surplus of 1.8 percent of GDP in FY24H1, exceeding projections by 0.4 percent of GDP.
  - Strong revenue performance driven by PDL, excise, and direct tax revenues; federal PSDP significantly under-executed.
  - Provincial overspending: PRs 136 billion in FY24H1 (Punjab curtailed FY24Q2 expenditures).
- Energy sector:
  - Power circular debt (CD): PRs 2.6 trillion (2.5 percent of GDP), broadly flat since October 2023.
  - Gas tariff increase: average 24 percent on February 15; progressive rate structure retained to protect vulnerable residential consumers; fertilizer prices equalized; modest increases for captive power and some industrial users.

### Program performance
- SBA status:
  - 9-month Stand-by Arrangement approved on July 12, 2023; program is on track.
  - All seven quantitative performance criteria (QPCs) for end-December 2023 met, including floors on SBP net international reserves and targeted cash transfer spending, and ceilings on SBP net domestic assets, FX swap/forward book, net government budgetary borrowing from the SBP, general government primary budget deficit, and government guarantees.
  - Continuous PCs met: zero new flow of SBP credit to the government; zero external public payment arrears.
  - All four indicative targets (ITs) for end-December 2023 met: floors on budgetary health and education spending and FBR net tax revenues; ceilings on net accumulation of tax refund arrears and power sector payment arrears.
  - Structural benchmarks (SBs) since the first review met: BISP inflation adjustment; notification of semiannual gas tariff adjustment determination; development of plan to strengthen SBP internal control systems in lending operations. Continuous SBs met: no new tax amnesties; no new preferential tax treatments or exemptions; average premium between interbank and open market rate kept ≤ 1.25 percent.
  - One missed SB (amending four dedicated SOE laws, end-November 2023) remains in progress; timing contingent on the newly-seated National Assembly.
- Financing and creditor support:
  - Support from multilateral and bilateral creditors remains strong and the program is financed.

### Policy priorities and recommendations
- Fiscal policy:
  - Strict adherence to the FY24 fiscal target and further adjustment beyond FY24 are essential, while protecting development needs and the social safety net.
  - Continued fiscal consolidation to alleviate external and domestic pressures and ensure fiscal sustainability.
- Exchange rate and monetary policy:
  - Maintain a flexible exchange rate to buffer shocks and rebuild reserves.
  - Keep monetary policy tight to bring inflation to more moderate levels and remain agile to respond if inflation signs reemerge.
- Energy sector:
  - Continue regular energy tariff adjustments to keep pace with costs to end creation of circular debt (CD).
  - Undertake broader reforms to fundamentally restore energy sector viability.
- Structural reforms:
  - Further progress needed on state-owned enterprise and broader governance reform agendas to spur private sector investment, activity, and jobs.

### SBA review and financing
- Staff supports completion of the review, which would:
  - Make available SDR 828 million.
  - Bring total access to SDR 2,250 million.
  - Help anchor essential financing from official partners.

### Outlook and risks
- Baseline outlook:
  - Inflation: year-end inflation in FY24 and FY25 revised up modestly due to more gradual slowdown in food inflation than anticipated.
  - Balance of Payments:
    - FY24 current account deficit projected at US$3.0 billion (0.8 percent of GDP), somewhat lower than at the first review.
    - Staff expects the current account deficit to remain around 1½ percent of GDP over the medium term under a flexible exchange rate consistent with efforts to rebuild reserves.
  - Public debt and fiscal sustainability:
    - End-FY24 debt-to-GDP ratio projected to decrease markedly, driven by fiscal consolidation and ex-post negative real interest rates.
    - Risks to debt sustainability remain acute due to very large gross financing needs, challenges in obtaining external financing, and projected unfavorable developments in real interest rates in coming years.
    - With sustained program policies and adequate multilateral and bilateral financial support, public debt would remain sustainable and on a downward path.
- Key projections and indicators (selected):
  - Power CD stock: PRs 2.6 trillion (2.5 percent of GDP).
  - Banks’ sovereign exposure: 57.4 percent of assets (end-January 2024).
  - Gross reserves: around US$8 billion.
  - EMBIG spreads: around 750 bps.
  - FY24H1 primary surplus: 1.8 percent of GDP (exceeding projections by 0.4 percent of GDP).
  - FY24 CAD projection: US$3.0 billion (0.8 percent of GDP).

*IMF staff report: EXECUTIVE SUMMARY (1pakea2024002) — April 8, 2024*

### 5. Downside risks remain exceptionally high. While the new government has indicated its

### 5. Downside risks remain exceptionally high. While the new government has indicated its

### Downside risks and external vulnerabilities
- Political uncertainty remains significant despite the government's stated intention to continue the SBA’s policies.
- A resurgence in social tensions (reflecting the complex political scene and high cost of living) could weigh on policy and reform implementation.
- Policy slippages, together with lower external financing, could undermine the narrow path to debt sustainability and place pressure on the exchange rate.
- Delays in post-program external financing disbursements would place further pressure on banks to finance the government, further exacerbating crowding out of the private sector.
- Geopolitically-driven higher commodity prices and disruptions to shipping, or tighter global financial conditions, would adversely affect external stability.

### Policy discussions — A. Fiscal Policy
- Authorities' FY24 fiscal target:
  - Committed to achieving a FY24 general government primary surplus of at least PRs 401 billion (0.4 percent of GDP).
  - FY24H1 fiscal targets were met, but risks from rapid provincial spending, small additional federal current expenditure, and a shortfall in anticipated SBP profits (0.1 percent of GDP) remain.
- Revenue mobilization and administration:
  - Strengthen revenue collection to align with the FY24 budget; annual FBR revenue targets remain unchanged.
  - Risks of shortfalls in April and May 2024 due to holidays and port closures.
  - Agreed contingency measures will be adopted if collections fall short.
  - FBR expanding track-and-trace to sugar, fertilizer, and cement.
  - FBR successfully registered 1.1 million new filers; 170,999 new returns obtained through enforcement measures, remainder voluntary.
- Primary expenditure control:
  - Contain primary expenditure to PRs 12,912 billion (12.1 percent of GDP) while preserving space for priority social spending.
  - Federal PSDP reduced by PRs 61 billion to offset SBP profit shortfall.
  - Further projected savings of PRs 40 billion expected from rationalization of unnecessary subsidies.
  - Additional expenditures of PRs 49 billion expected, mainly from unanticipated military wage and pension bills.
  - Authorities reaffirm commitment to stay within the overall primary expenditure envelope, avoid supplementary grants, and use the PRs 250 billion budgeted emergency fund to absorb deviations.
- Fiscal coordination with provinces:
  - Provinces committed to achieving FY24 budget surplus targets per December 2023 MoUs.
  - Punjab pledged to further contain current and development expenditures.
  - Sindh allocated a total of PRs 63 billion for principal payments in FY24 (PRs 40 billion scheduled for FY24H2) to settle accumulated commodity debt.
- Privatization and SOE liabilities:
  - Plans to privatize Pakistan International Airlines (PIA) and other assets advanced; aim to complete bidding by June 2024 for PIA’s core business and likely seek to sell a (controlling) 51 percent stake.
  - Use of divestment proceeds prioritized to settle government-guaranteed debt transferred from PIA’s balance sheet to a holding company: PRs 242 billion of a total of PRs 629 billion in liabilities to be transferred.
  - Several smaller SOEs on active privatization list.
- Fiscal structural reforms (details and timelines):
  - Retailer registration and enforcement scheme: SRO published March 30, 2024; first phase (registration) started; tax collection to begin by July 1, 2024.
  - Transformation of FBR into semi-autonomous Revenue Authority delayed to engage an international consulting firm.
  - Documentation law passed mandating data sharing with FBR; collaboration with NADRA for secure data transmission.
  - Compliance Risk Management team identified 39 cases, 31 audited, with projected additional revenues of at least PRs 40 billion.
  - Digital invoicing system framework established; second licensing round expected to conclude by June 30, 2024.
  - Public Financial Management (PFM): quarterly reports comparing budget projections with actual execution; commitment not to issue supplementary grants and to seek ex-ante National Assembly approval for non-budgeted expenditures exceeding parliamentary-approved FY24 appropriation.
  - Standardized monthly federal-provincial reporting templates established and a first set of data shared.
  - Spending transparency: e-PADS utilization with PRs 1,587 billion of planned procurement entered into system; public access to suppliers’ beneficial ownership and future Auditor General audit planned.
  - Debt management: initial Shariah-compliant issuances via Pakistan Stock Exchange in December 2023 received ample interest; interest savings limited thereafter as rates converged. Ceiling on government guarantees remains key; work advanced to include SOE debts related to commodity operations in the guarantee perimeter.

### Policy discussions — B. Poverty Reduction and Social Protection
- BISP FY24 execution and coverage:
  - Authorities on pace to execute FY24 BISP envelope of PRs 472 billion (0.4 percent of GDP), a significant increase over FY23.
  - Program absorbed another 300,000 families into the Kafaalat UCT program in FY24, bringing total enrollment to 9.3 million.
  - Benefit adjustment carried out in January (end-January 2024 SB) maintained the scheme’s generosity level, though generosity remains low by international standards.
  - Institutionalize adjustments to maintain real-term generosity.
- BISP conditional cash transfers (CCTs) and service delivery:
  - In FY24, 0.9 million families and 1.9 million children enrolled into health and education CCT programs respectively.
  - Health and education spending outside BISP met end-December 2023 target and should be protected and fully executed for the rest of FY24.
  - Pakistan’s progressive energy tariff structure continues to protect the most vulnerable, but long-term policy should replace this with BISP cash transfers.
- Administrative improvements:
  - Target of 20 million households in fully operational dynamic registry by September 2024 to enable next recertification cycle.
  - BISP updated bank contracts to expand coverage, enhance payment efficiency, and reduce administrative costs.

### Policy discussions — C. Monetary, Exchange Rate, and Financial Sector Policies
- Monetary stance:
  - Continuing a tight monetary stance critical to entrench disinflation and re-anchor expectations to the SBP’s medium-term inflation objective.
  - Staff welcomed MPC decision to keep policy rates on hold.
  - Any loosening should be supported by evidence of a declining inflation trend, contained pass-through, and limited exchange rate pressures from FX market normalization.
  - Monetary policy principles emphasized: (i) primacy of medium-term inflation objective; (ii) interest rate as main policy tool; (iii) monetary transmission operating, albeit slowly.
- Exchange rate and FX market:
  - Authorities committed to a flexible exchange rate and transparent interbank FX market to support external rebalancing and reserve rebuilding.
  - Staff welcomed elimination of the remaining MCP and exchange restriction and steps to modernize FX market environment.
  - Staff recommended proactively building reserves via interbank purchases; reduction in SBP’s swap/forward position aided decompression of forward premia.
  - Banks should be free to transact in interbank FX market without constraints to help deepen the market and buffer shocks.
- Banking sector and undercapitalized institutions:
  - Close monitoring and addressing undercapitalization remain essential.
  - Amendments to bank resolution and deposit insurance legislation will strengthen crisis management and bank resolution framework; reform package should be adopted and operationalized by SBP.
  - Progress: winding down an undercapitalized public bank with almost all deposits repaid and branches closed though liquidation faced delay.
  - Two private banks remain undercapitalized; partial recapitalization progress for one; authorities pursuing options with shareholders.
  - Microfinance sector vulnerabilities: owners asked to provide time-bound recapitalization plans; approach returned two institutions to regulatory minimum standards.
  - Staff welcomed SBP plan to strengthen internal control systems in SBP lending operations and urged counterparty eligibility policy require financially sound counterparties.
  - SBP completed feasibility study for FX purchases/sales via auctions; staff welcome greater transparency around SBP FX operations.

### Policy discussions — D. Energy Sector Policy
- Overall priorities:
  - Timely implementation of scheduled tariff adjustments, full disbursement of budgeted FY24 power subsidies, and broader reforms critical to restoring energy sector viability.
- Power sector specifics:
  - With April 1, 2024 notification of delayed Q2 FY24 quarterly tariff adjustment, continuation of anti-theft efforts, and release of budgeted subsidies, authorities should be able to meet FY24 CDMP target of PRs 2.3 trillion (net zero stock accumulation).
  - Timely notification of FY25 annual rebasing critical to prevent further CD flow; enhance and institutionalize digital monitoring.
  - Finalized plan for agricultural tube well subsidy reform targeted by end-FY24.
  - Cost-side reforms required to restore viability, including:
    - improving transmission infrastructure and renewable integration/expansion;
    - improving DISCO performance via privatization or long-term management concessions;
    - moving captive power demand to the grid;
    - revisiting power purchase agreement terms where feasible;
    - converting publicly-guaranteed PHPL debt into cheaper public debt.
  - Note: About one-third of PRs 976 billion in budgeted subsidies had been disbursed as of end-January 2024. Pending budgeted subsidies included tariff differential and other subsidies (PRs 249 billion), additional subsidies related to arrears penalties (PRs 125 billion), and payments toward PHL stock and power producer-related arrears (PRs 255 billion).
- Gas sector specifics:
  - Resumption of gas tariff adjustments in line with cost recovery contributed to modest decline in natural gas CD to PRs 2,083 billion (2.0 percent of GDP) as of January 2024.
  - Continued timely gas tariff determinations and notifications within required 40-day window, while protecting vulnerable households, starting with June 2024 semiannual adjustment, are critical to prevent further CD flow.
  - Price adjustments should move toward full phasing out of captive power usage this year, prioritize cheaper natural gas for most efficient power plants, and fully equalize gas prices for all fertilizer companies.
  - Authorities signaled intention to move toward fully implementing a weighted average cost of gas (WACOG) across Pakistan to introduce a uniform gas price and help ensure cost recovery.
  - RLNG has become an increasingly larger component of the gas mix given declining natural gas supplies; RLNG has subsequently been diverted to domestic users at below full cost.

### Policy discussions — E. Structural Policies
- SOE reform and governance:
  - Implementing the SOE Act and policy framework, including updating March 2021 SOE Triage Plan to propose SOEs to retain, privatize, or restructure.
  - Review governance restructuring needs; further amendments for four statutory SOEs to align with SOE Act (missed SB for end-November 2023), then move on to remaining 16 statutory SOEs.
  - Issue legal guidelines and training for SOEs; operationalize Central Monitoring Unit (CMU), which published first SOE Report in December 2023; CMU’s next report in June 2024 expected to progress reporting elements required by SOE Act with performance benchmarks expected in later reports in FY25.
  - Clarify classification and governance arrangements for seven SOEs under Sovereign Wealth Fund established August 2023 (not yet operational and exempt from SOE Act); bring governance safeguards on par with SOE Act.
- Investment climate and accountability:
  - Special Investment Facilitation Council (SIFC) created August 2023 requires safeguards to bring projects under PIMA framework to ensure accountability and transparency given SIFC’s power to offer regulatory relief and immunities.
- Anti-corruption and governance measures:
  - Safeguard independence and enhance effectiveness of anti-corruption institutions.
  - Authorities committed to publishing anti-corruption framework review by Ministry of Justice and Law task force and the full UNCAC review report when finalized.
  - Train and engage banks to leverage access to FBR’s database of asset declarations of high-level public officials for AML/CFT purposes; digital portal to facilitate bank access requests and FBR responses.
  - Public access to asset declarations of elected and unelected Federal Cabinet members expected to be institutionalized.
  - A future comprehensive governance diagnostic assessment recommended to identify severe vulnerabilities and prioritize reforms.
- Climate resilience:
  - Following cabinet adoption of C-PIMA action plan (SB end-December 2023), authorities moving forward on near-term items targeting climate-related investment and urban planning, project selection, fiscal risk analysis, and capacity building.
  - Authorities drafted carbon market policy guidelines and aim to develop climate scoring methodology for National Adaptation Plan-aligned projects in PSDP portfolio by September 2024.

*Source: IMF staff report excerpt (Content unit: 1pakea2024002).*

### 17. Financing. The program is fully financed and the reserve position at end-FY24 is  consistent

### 17. Financing. The program is fully financed and the reserve position at end-FY24 is  consistent with program objectives

### Financing status and near-term risks
- Total delivery of the SBA financing commitments in FY24 is expected to fall somewhat short of projections in the SBA request: US$4.0 billion out of the US$4.6 billion have been disbursed.
- Some disbursements are expected to spill into FY25.
- Shortfall has been compensated by:
  - a tighter current account, and
  - savings from a debt rearrangement with a major bilateral creditor prior to the first review.
- Given Pakistan’s external sector vulnerabilities, timely delivery of the remaining commitments is important.
- Medium-term risks to financing:
  - large public sector external rollover needs,
  - a persistent current account deficit,
  - a difficult external environment for Eurobond and Sukuk issuance,
  - limited reserve buffers.

### Capacity to repay the Fund
- The Fund’s exposure reaches SDR 6,546 million (322 percent of quota, approximately 102 percent of projected gross reserves at end-April 2024) with completion of all purchases under the SBA.
- Pakistan’s capacity to repay is subject to significant risks and remains critically dependent on:
  - policy implementation, and
  - timely external financing.
- Exceptionally high risks that could jeopardize repayment capacity and debt sustainability include:
  - delayed adoption of reforms,
  - high public debt and gross financing needs,
  - low gross reserves and the SBP’s net FX derivative position,
  - a decline in inflows,
  - sociopolitical factors.
- Restoring external viability hinges on strong policy implementation, including:
  - external asset accumulation, and
  - exchange rate flexibility.
- Geopolitical instability and uncertainty in global financial conditions are additional sources of risk.

### Enterprise risk
- The SBA poses significant enterprise risks, largely unchanged since the first review, including:
  - credit concentration,
  - capacity to repay,
  - reputation and engagement risks,
  - sociopolitical tensions,
  - the security situation.
- Additional mitigation noted:
  - the newly formed government’s intention to continue policy adjustment after the SBA, and
  - interest in a successor arrangement from the Fund,
  - although political uncertainty remains significant.

### Staff appraisal — macroeconomic performance and outlook
- Stronger policy implementation over the past nine months has:
  - brought the economy back from the brink and onto a path of stability,
  - supported a gradual economic recovery,
  - contributed to a substantial recent decline in inflation, though inflation remains well above target.
- The SBP has begun rebuilding FX reserves by taking advantage of:
  - increased inflows,
  - easing external pressures,
  - moderation of the current account deficit.
- Fiscal performance improved, with the government posting a large primary surplus in H1.
- The overall performance suggests unwavering and consistent policy implementation can rebuild confidence and support recovery.

### Remaining challenges and recommended policy directions
- Despite achieving the SBA’s narrow objectives, vulnerabilities remain very high:
  - debt sustainability and refinancing risks,
  - crowding out of the private sector,
  - structural weaknesses constraining productivity, investment, and growth.
- Continuation of the reform effort started under the SBA is critical; authorities’ interest in a successor arrangement is welcomed to:
  - anchor policy adjustment in the coming years,
  - restore Pakistan’s medium-term sustainability,
  - pave the way for strong and inclusive growth.
- Fiscal policy recommendations:
  - Commendation for the caretaker government’s efforts to meet the FY24 primary surplus target.
  - Ensure strict budget compliance and close coordination with provinces to mitigate macro-fiscal risks.
  - Accelerate adoption and implementation of structural reforms to enhance revenue mobilization and spending efficiency.
  - Secure ex-ante National Assembly approval for any budget deviation to bolster credibility and transparency.
- Social protection recommendations:
  - Continue strengthening social spending and institutions to protect the most vulnerable.
  - Maintain, if not increase, generosity levels in real terms via annual inflation indexation.
  - Expand CCT programs where possible and continue improving BISP’s administrative capacity.
- Monetary and exchange-rate policy:
  - With inflation still well above target, monetary policy should remain appropriately tight and data-driven.
  - Be vigilant for stickiness in core inflation and resolutely address emerging risks to guide inflation back to target.
  - A flexible exchange rate supported by a deep and well-functioning FX market is critical to buffer shocks and rebuild reserves.
  - Eliminate the remaining MCP and exchange restriction and continue efforts to improve FX market functioning and rebuild reserves via interbank purchases as conditions permit.
- Financial sector and structural reforms:
  - Maintain vigilance to preserve financial sector stability and address undercapitalized institutions.
  - Ensure all banks and microfinance banks comply with minimum capital requirements or exit orderly.
  - Pass legal reform of the crisis management framework to equip authorities with powers and tools to deal with weak institutions.
  - Continue SOE reforms to reduce the state footprint and spur private sector growth.
  - Strengthen independent anti-corruption institutions and AML/CFT measures; consider a future governance diagnostic assessment.
  - Build climate resilience as part of sustainable growth strategies.
- Energy sector:
  - Recent energy tariff increases are major steps to prevent further CD arrears.
  - Broader cost-side and infrastructure reforms are still critical for sectoral viability.

### Risk outlook
- Downside risks remain exceptionally high due to:
  - a challenging external environment with tight global financial conditions,
  - volatile commodity prices,
  - elevated geopolitical tensions.
- External and domestic financing needs in coming years are very large.
- Sustained policy adjustment in the post-SBA period is necessary to secure financing and prevent re-intensification of fiscal and balance of payments pressures.

*Source: 1pakea2024002 - 17. Financing. The program is fully financed and the reserve position at end-FY24 is  consistent*

### 30. On the basis of the authorities’ program implementation and policy commitments,

### 1pakea2024002 - 30. On the basis of the authorities’ program implementation and policy commitments,

### Program decision
- Staff supports the authorities' request for completion of the second review under the SBA.

### Real economy: recent outcomes and near-term outlook
- Growth contracted in FY23 in the context of floods, tight external financing, and adverse domestic policies.
- Selected headline statistics:
  - Population: 231.6 million (2022/23)
  - Main exports: Textiles (US$16.5 billion, 2022/23)
  - Unemployment: 6.2 percent (2021/22)
  - Poverty rate: 21.9 percent (at national line; 2018/19)
  - Per capita GDP: US$1,446.3 (2022/23)
- Real GDP at factor cost (selected sequence around review):
  - 2022/23: 3.1
  - 2023/24 Est.: -0.9
  - 2024/25 Prog.: 5.8
  - Medium-term path examples: 2025/26 Prog.: 6.2; 2026/27 Proj.: -0.2; 2027/28 Proj.: -0.2
- Inflation (consumer prices, period average):
  - 2022/23: 6.7
  - 2023/24 Est.: 10.7
  - 2024/25 Prog.: 8.9
  - 2025/26 Prog.: 12.1

### External sector: trade, reserves, and financing
- Import compression has driven a narrowing of the current account deficit.
- Gross reserves (end-period, in millions of U.S. dollars; selected observations):
  - 2018/19: 7,274
  - 2019/20: 12,175
  - 2020/21: 17,297
  - 2021/22: 9,821
  - 2022/23: 4,455
  - 2023/24 (various entries): 9,029; 13,364 (figures reported across tables/figures)
- Current account (in percent of GDP; selected sequence):
  - 2018/19: -4.2
  - 2019/20: -1.5
  - 2020/21: -0.8
  - 2021/22: -4.7
  - 2022/23: -0.7
  - 2023/24 (Proj.): -1.6
  - 2024/25 (Prog.): -0.8
- Balance of payments headline (in millions of U.S. dollars):
  - Current account 2023/24 (Proj.): -2,820
  - Current account 2024/25 (Prog.): -13,434
- Gross external financing requirements (A) and available financing (B) (selected 2024/25 line):
  - Gross External Financing Requirements (A): 25,552
  - Available Financing (B): 21,103
  - Remaining Financing Needs (C=A-B): 4,449

### External competitiveness
- Real effective exchange rate (REER) has crept back up amid recent nominal stability (figures plotted in text; specific index values shown in figure panels).

### Monetary policy, markets, and liquidity
- The SBP has held the policy rate at 22 percent since June 2023.
- Market rates have generally been aligned amid heightened uncertainty and external pressures.
- Stock and bond market developments:
  - Pakistan’s bond spread dropped significantly following SBA approval.
  - Stock market experienced a boom in late 2023, outperforming regional peers in the period reported.
- Open Market Operations (OMOs) and liquidity:
  - Liquidity injections via OMOs remain very high (OMOs presented as end-of-month outstanding amounts in trillions of Pakistani rupees in figure panels).
- Monetary aggregates and selected indicators (annual changes or levels as reported):
  - Broad money (percent change): 11.3; 17.5; 16.2; 13.6; 14.2; 11.0; 13.5; 22.0 (table entries across years)
  - Reserve money (percent change): 19.9; 16.8; 12.8; 7.7; 22.4; 11.0; 11.0; 25.7

### Banking system and financial stability
- NPLs rose in FY23 but remained relatively contained in the context of the large economic deceleration.
  - Nonperforming loans (NPLs) to gross loans (Dec. series): 13.3; 12.3; 11.4; 10.1; 8.4; 8.0; 8.6; 9.2; 7.9; 7.3; 7.6 (2013–2023)
- Banking sector tilt toward government credit:
  - Credit to government and credit to private sector series show the banking system remains oriented toward providing credit to the government, leaving Pakistan behind peers in terms of private credit relative to GDP.
- Private credit (percent change, selected entries):
  - Private credit (percent change): 11.9; 3.0; 11.5; 17.4; 2.3; 2.3; -1.0; 0.1; 0.5; 5.0; 3.5; 20.0 (table sequences)
- Capitalization, profitability, and liquidity (selected indicators, banking system, 2013–2023):
  - Regulatory capital to risk-weighted assets (Dec.): 14.9; 17.1; 17.3; 16.2; 15.8; 16.2; 17.0; 18.6; 16.7; 17.0; 19.7
  - Return on assets (after tax): 1.1; 1.5; 1.5; 1.3; 0.9; 0.8; 0.8; 1.0; 1.0; 1.0; 1.7
  - Liquid assets to total assets: 48.6; 49.2; 53.8; 53.7; 54.0; 48.7; 49.7; 54.8; 55.4; 56.6; 63.5

### Public finances: fiscal position and debt
- Fiscal balance and debt metrics (selected entries, percent of GDP and levels):
  - Revenue and grants (percent of GDP): 11.3; 13.3; 12.4; 12.1; 11.4; 12.5; 12.5; 12.4
  - Expenditure (including statistical discrepancy, percent of GDP): 19.1; 20.3; 18.5; 20.0; 19.2; 20.2; 20.0; 19.8
  - Budget balance (including grants, percent of GDP): -7.8; -7.0; -6.0; -7.8; -7.8; -7.6; -7.4; -7.4
  - Primary balance (excluding grants, percent of GDP): -3.1; -1.6; -1.2; -3.1; -1.0; 0.4; 0.4; 0.4
  - General government debt incl. IMF obligations (percent of GDP; selected): 75.4; 76.8; 71.4; 74.1; 74.7; 70.3; 69.6; 68.1
- Levels (selected nominal aggregates):
  - Nominal GDP (market prices, billions of Pakistani rupees; memorandum): 43,798; 47,540; 55,836; 66,640; 84,069; 84,069; 106,577; 106,679
  - General government debt incl. IMF obligations (billions of PRs; table entries): 33,946; 37,823; 41,044; 50,766; 64,828; 64,828; 77,636; 76,913

### IMF financing, program disbursements, and Fund credit
- Table of Fund support and reviews:
  - Availability Date: July 12, 2023 — Amount of Purchase: 894 — Percent of Quota: 44.0 — Approval of arrangement
  - December 1, 2023 — Amount of Purchase: 582 — Percent of Quota: 26.0 — First review and end-September 2023 performance/continuous criteria
  - March 15, 2024 — Amount of Purchase: 828 — Percent of Quota: 40.8 — Second review and end-December 2023 performance/continuous criteria
  - Total: 2,250 — Percent of Quota: 110.8
- Indicators of Fund credit (total outstanding, in millions of SDR; selected sequence):
  - Total (across years in table): 3,600.0; 4,393.0; 4,393.0; 4,243.0; 4,867.0; 5,192.5; 4,810.3; 5,722.2; 5,660.1; 5,752.2; 4,983.0; 4,504.3; 3,145.9; 1,626.3; 847.0
  - In percent of quota (selected): 348.3; 216.3; 216.3; 208.9; 239.6; 255.7; 236.8; 281.7; 278.7; 283.2; 245.3; 221.8; 154.9; 80.1; 41.7

### Medium-term projections (selected trajectories)
- Real GDP at factor cost (medium-term projections, percent):
  - 2024/25 Prog.: 5.8
  - 2025/26 Prog.: 6.2
  - 2026/27 Proj.: -0.2
  - 2027/28 Proj.: 2.0
  - 2028/29 Proj.: 3.5
- Consumer prices (period average, medium-term):
  - 2024/25 Prog.: 8.9
  - 2025/26 Prog.: 12.1
  - 2026/27 Proj.: 6.1
  - 2027/28 Proj.: 4.0
  - 2028/29 Proj.: 2.8
- Current account balance (in percent of GDP; medium-term):
  - 2024/25 Prog.: -0.7
  - 2025/26 Prog.: -0.7
  - 2026/27 Proj.: -1.6
  - 2027/28 Proj.: -0.8
  - 2028/29 Proj.: -1.2
- Gross reserves (selected medium-term stock projections, billions of U.S. dollars):
  - 2024/25 Prog.: 12.2
  - 2025/26 Prog.: 17.3
  - 2026/27 Proj.: 9.8
  - 2027/28 Proj.: 4.5
  - 2028/29 Proj.: 4.5

*Italicized source: IMF staff report content as provided in the supplied PDF content unit.*

### Annex I. Progress Under the SBA and Challenges Ahead

### Annex I. Progress Under the SBA and Challenges Ahead

### SBA outcomes and macroeconomic stabilization
- The SBA “succeeded in stabilizing the economy, rebuilding buffers, and making some progress on the structural reform agenda.”
- Projected FY24 growth was revised down from 2.5 to 2.0 percent at the time of the first review, reflecting weaker-than-expected domestic demand.
- Market sentiment improved markedly since program start, “with EMBIG spreads down over 1,300 bps,” although “risks to debt sustainability remain large.”
- Authorities are on track to fully implement the FY24 budget, supporting a “strong primary balance improvement,” driven by “strong revenue performance.”
- Monetary policy was kept “appropriately tight” and “saw the start of disinflation,” despite necessary energy tariff increases to avoid CD accumulation.
- FX market functioning improved amid easing external pressures.

### Progress on structural reforms
- Benchmarks achieved include: sound budget practices; social spending; FX market measures; energy sector stability; SOE governance reform (work toward the missed end-November 2023 SB on amending four dedicated SOE laws remains in progress); climate resilience; and macroeconomic statistics.
- Noted risk: creation of the SWF and SIFC in August 2023 “pose risks to the SOE reform and business environment agendas.”

### Remaining challenges and policy priorities
- Debt sustainability remains “a large risk.”
- Continued revenue-driven fiscal consolidation is “critical.”
- Inflation remains high despite disinflation trajectory; “SBP must remain vigilant, ready to take prompt actions if needed.”
- A flexible exchange rate is emphasized as “key to moderating balance of payments pressures and rebuilding international reserves.”
- Structural challenges requiring further action: narrow export base; low private investment and FDI; weak revenue base relative to public investment needs; low health and education spending; elevated poverty levels; and income and gender inequality.

### External sector assessment — key indicators and staff assessments
- Overall: “The external position of Pakistan in FY23 was broadly in line with the level implied by medium-term fundamentals and desirable policies,” but import payment restrictions distorted outcomes.
- Current account (CA) developments:
  - CA posted a small surplus in FY24Q2 of about US$200 million, driven by increased exports.
  - Staff projects the CA balance for FY24 reaching approximately -0.8 percent of GDP, compared to -0.7 in FY23, -4.7 in FY22, and -0.8 in FY21.
  - Staff estimates the cyclically adjusted CA in FY23 at -0.6 percent of GDP; the EBA CA norm is estimated at -0.7 percent of GDP but staff judges the norm to be closer to -0.5 percent of GDP.
  - Staff judges the CA gap to be -0.1.
  - The impact of import payment restrictions in FY23 is not captured by the EBA model; unwinding those distortions would likely move the CA gap toward a weaker external position.
- Net International Investment Position (NIIP) and external liabilities:
  - NIIP reached US$-131 billion in 2023.
  - 2023 NIIP metrics (percent of GDP): NIIP: -38.7; Gross Assets: -6.6; Gross Liabilities: -45.3.
  - Net direct investment stood at US$-28.8 billion; net portfolio investment reached US$-9.3 billion.
- Real Effective Exchange Rate (REER):
  - REER changes: depreciated 5.8 percent in FY23 and 1.2 in FY22; appreciated 2 percent in FY21.
  - FY23 REER change reflects a trade-weighted nominal depreciation of about 26.5 percent, foreign inflation of around 7.5 percent among trading partners, and domestic inflation of 29 percent.
  - By end-FY24Q2 the REER had appreciated about 10 percent compared to FY23 Q1, with the nominal exchange rate “broadly stable at around PRs 280 per US$ since July 2023.”
  - Staff’s assessment places the FY23 REER gap at 0.7 percent using the EBA CA model and sees “a need for greater exchange rate flexibility.”
- Capital and financial account:
  - Financial account posted a deficit of US$2.5 billion in FY23, driven primarily by government debt repayments (general government amortizations exceeded disbursements by US$2.9 billion).
  - Other flows: “Other investment assets” of the general government were US$900 million; net portfolio investment totaled just over US$-1 billion; net FDI reached US$600 million.
  - Pakistan’s normalized Chinn-Ito Index of 0.16 places it at the 25th percentile of the world sample for capital mobility.
- Reserves and FX intervention:
  - Gross official reserves: US$4.5 billion in FY23 (about 1.3 percent of GDP, or 0.8 months of imports), compared with US$9.8 billion in FY22 and US$17.2 billion in FY21.
  - Reserves recovered to US$8.2 billion in December 2023.
  - SBP reduced its negative net forward position from US$-4.5 billion in July 2023 to US$-3.4 billion by end-December 2023; SBP forward position has remained broadly unchanged during 2024.
  - Pakistan’s gross reserves in 2023 reached 18.2 percent of the IMF’s (capital controls-adjusted) ARA metric, well below the normative adequacy range of 100-150 percent of the ARA metric.
  - Staff projects gross reserves to reach US$22 billion by end-FY29, conditional on avoiding actions to manage the current account that could cause excessive real appreciation.

### Authorities’ commitments in the Letter of Intent (post-SBA priorities and measures)
- Fiscal consolidation and revenue mobilization:
  - Deliver the FY24 general government primary balance (excluding grants) target of PRs 401 billion (0.4 percent of GDP).
  - Aim for a general government primary surplus of 1.0 percent of GDP in FY25, with continued consolidation thereafter.
  - Mobilize “significant additional revenue” through broadening the tax base, enhancing revenue administration, and incentivizing balanced provincial fiscal efforts.
  - Issued an SRO on March 30, 2024 to register and collect taxes from non-filing supply chain operators and retailers; enforcing income tax returns and collecting minimum advance income tax to begin July 1, 2024 (launched first in four provincial capitals and Islamabad).
  - Commitments: limit guarantees to no more than PRs 4,300 billion by end-June 2024 and PRs 4,900 billion by end-December 2024; not to grant further tax amnesties or new preferential tax treatments or exemptions in FY24 or FY25 without prior NA approval; refrain from future use of supplementary grants.
- Energy sector reforms and CD (circular debt) reduction:
  - Target end-June goal of net zero CD accumulation.
  - Commit to regular, timely, and automatic notifications of natural gas and electricity tariff adjustments consistent with full cost recovery; reduce natural gas price disparities; seek cost reductions; accelerate structural reforms (DISCO governance, moving captive power to grid, tube well subsidy reform proposal by end-FY24, expand renewable capacity in line with IGCEP, improve transmission and distribution, refine anti-theft efforts).
  - Post-SBA commitments include: protect low-income consumers via progressive tariffs; avoid subsidized or preferential industrial tariffs; not introduce new fuel subsidy or cross-subsidy schemes in FY24 and beyond; refrain from netting out cross-arrears without due diligence and independent auditing; not use “non-cash” settlements for DISCOs; avoid issuing additional government guarantees to sector entities except as replacement guarantees on expiry.
- Monetary policy, FX flexibility, and reserves:
  - Monetary policy “decisively geared towards returning inflation to target” and continue building reserves.
  - Maintain appropriately tight monetary policy stance and remain proactive against pass-through from gas price increases or exchange rate pressures.
  - Ensure a flexible exchange rate and advance policies to deepen the FX market to attract private inflows.
  - Limit FX sales to episodes of disorderly market conditions and “not used to prevent a trend depreciation of the rupee driven by fundamentals.”
- SOE and state role rebalancing:
  - Remove distortionary protection, subsidies, and concessions; advance privatization and restructuring (including PIA where appropriate), ensuring transparency and minimizing public balance sheet impacts.
  - Further advance SOE governance reforms, bringing legal frameworks of all SOEs into line with the SOE Act in a phased manner; strengthen the Central Monitoring Unit.
  - For SOEs under the SWF, ensure governance frameworks meet principles required by the SOE Act.
  - Ensure SIFC does not create an uneven playing field, promise incentives or guaranteed returns, or distort investment landscape; establish transparency and accountability practices for SIFC operations and ensure investments follow standard Public Investment Management framework.
- Social protection, human capital, and governance:
  - Strengthen social protection by increasing generosity and coverage, and improving efficiency and transparency; engage provinces on sharing social expenditure burden under BISP.
  - Increase investment in human capital, complete reforms of bank resolution and deposit insurance frameworks while addressing undercapitalized banks, improve governance and anti-corruption frameworks, and build climate resilience.

*Source: Annex I. Progress Under the SBA and Challenges Ahead; Annex II. External Sector Assessment; Appendix I. Letter of Intent (excerpts).*

### 5. Overall, we believe that the policies set out here are adequate for the successful

### 1pakea2024002 - 5. Overall, we believe that the policies set out here are adequate for the successful

### Program conclusion and request to the IMF
- The authorities state: "we believe that the policies set out here are adequate for the successful implementation of our program and we will consult with the IMF on the adoption of any new measures."
- The authorities commit to "continue to supply the IMF with timely and accurate data as agreed and consent to the IMF’s publication of this letter, the TMU, and accompanying Executive Board documents."
- Request to the IMF Executive Board:
  - Approval of the completion of the second review under the SBA.
  - Related purchase in the amount of SDR 828 million (40.8 percent of quota).

### Quantitative performance (selected outcomes and statuses) — Table 1 highlights
- Test dates reported: end-September 2023; end-December 2023.
- Floor on net international reserves (NIR) of the SBP (millions of U.S. dollars):
  - Program (end-Sep): -14,550; Adjusted Prog.: -15,673; Actual: -13,781; Status: Met.
  - Program (end-Dec): -13,800; Program: -13,400; Adjusted Prog.: -14,670; Actual: -12,720; Status: Met.
- Ceiling on net domestic assets (NDA) of the SBP (stock, billions of Pakistani rupees):
  - Program (end-Sep): 15,048; Adjusted Prog.: 15,370; Actual: 14,410; Status: Met.
  - Program (end-Dec): 14,888; Program: 14,450; Adjusted Prog.: 14,814; Actual: 14,319; Status: Met.
- Ceiling on SBP's stock of net foreign currency swaps/forward position (negative, millions of U.S. dollars):
  - Program (end-Sep): 4,200; Adjusted Prog.: ...; Actual: 3,540; Status: Met.
  - Program (end-Dec): 4,000; Adjusted Prog.: ...; Actual: 3,423; Status: Met.
- Ceiling on net government budgetary borrowing from the SBP (stock, billions of Pakistani rupees):
  - Program (end-Sep): 4,708; Adjusted Prog.: ...; Actual: 4,380; Status: Met.
  - Program (end-Dec): 4,708; Program: 4,708; Adjusted Prog.: ...; Actual: 3,217; Status: Met.
- Ceiling on the general government primary budget deficit (cumulative, excl. grants, billions of Pakistani rupees) 2/:
  - Program (end-Sep): -87; Adjusted Prog.: -389; Actual: -376; Status: Not met.
  - Program (end-Dec): -1,232; Program: -1,420; Adjusted Prog.: -1,402; Actual: -1,812; Status: Met.
- Ceiling on the amount of government guarantees (stock, billions of Pakistani rupees):
  - Program (end-Sep): 4,000; Adjusted Prog.: ...; Actual: 3,806; Status: Met.
  - Program (end-Dec): 4,050; Program: 4,050; Adjusted Prog.: ...; Actual: 3,748; Status: Met.
- Cumulative floor on targeted cash transfers spending (BISP) (billions of Pakistani rupees):
  - Program (end-Sep): 87.5; Adjusted Prog.: ...; Actual: 89.8; Status: Met.
  - Program (end-Dec): 185.5; Program: 185.5; Adjusted Prog.: ...; Actual: 186.1; Status: Met.
- Continuous performance criteria (selected):
  - Zero new flow of SBP's credit to general government: 0... 0 Met (end-Sep and end-Dec).
  - Zero ceiling on accumulation of external public payment arrears by the general government: 0 ... 0 Met (end-Sep and end-Dec).
- Indicative targets (selected):
  - Cumulative floor on general government budgetary health and education spending (billions of Pakistani rupees):
    - Program (end-Sep): 465; Adjusted Prog.: ...; Actual: 482; Status: Met.
    - Program (end-Dec): 1,031; Program: 905; Adjusted Prog.: ...; Actual: 1,007; Status: Met.
  - Floor on net tax revenues collected by the FBR (cumulative, billions of Pakistani rupees):
    - Program (end-Sep): 1,977; Adjusted Prog.: ...; Actual: 2,042; Status: Met.
    - Program (end-Dec): 4,425; Program: 4,425; Adjusted Prog.: ...; Actual: 4,469; Status: Met.
  - Ceiling on net accumulation of tax refund arrears (cumulative, billions of Pakistani rupees):
    - Program (end-Sep): 32; Adjusted Prog.: ...; Actual: -15; Status: Met.
    - Program (end-Dec): 43; Program: 43; Adjusted Prog.: ...; Actual: -31; Status: Met.
  - Ceiling on power sector payment arrears (cumulative flow, billions of Pakistani rupees):
    - Program (end-Sep): -155; Adjusted Prog.: ...; Actual: 227; Status: Not Met.
    - Program (end-Dec): 64; Program: 385; Adjusted Prog.: ...; Actual: 378; Status: Met.

### Structural conditionality (Table 2) — benchmarks and statuses
- Fiscal:
  - Commit to not grant further tax amnesties. — Continuous — Met.
  - Avoid the practice of issuing new preferential tax treatments or exemptions. — Continuous — Met.
  - Issuance by the Central Monitoring Unit (CMU) of its first periodic report on the performance — end-Dec. 2023 — Met.
- Social:
  - Inflation adjustment of the unconditional cash transfer (Kafaalat). — end-Jan. 2024 — Met.
- Monetary and Financial:
  - Average premium between the interbank and open market rate will be no more than 1.25 percent during any consecutive 5 business day period. — Continuous — Met.
  - Submission to parliament of amendments to align Pakistan’s early intervention, bank resolution, and crisis management arrangements with international good practices — end-Dec. 2023 — Met.
  - Develop a plan to strengthen internal control systems in lending operations, including updates to collateral policy and counterparty eligibility policy, in line with recommendations from the 2023 Safeguards Assessment — March 8, 2024 — Met.
- Energy Sector and State-Owned Enterprises:
  - Notification of the annual rebasing (AR) for FY24 to take effect on July 1, 2023 — end-Jul. 2023 — Met.
  - Notification of the December 2023 semiannual gas tariff adjustment determination — February 15, 2024 — Met.
  - Improve SOE governance by operationalizing the recently approved SOE law into a policy and amending the Acts of four selected SOEs — end-Nov. 2023 — Not met.
- Climate:
  - Cabinet adoption of a Climate-PIMA and PIMA action plan — end-Dec. 2023 — Met.
- Economic Statistics:
  - Compilation and dissemination of Quarterly National Accounts for FY24Q1 and revised annual estimates for FY23 — end-Nov. 2023 — Met.

### Technical Memorandum of Understanding (TMU) — scope, exchange rates, and key definitions
- Scope:
  - TMU sets out definitions of quantitative performance criteria, indicative targets, adjustment mechanisms, and reporting requirements for monitoring the SBA program as described in the authorities’ LOI dated December 18, 2023, and the attached MEFP (notably Tables 1 and 2).
  - Authorities will provide necessary data to the IMF as soon as it becomes available.
  - Definitions in the TMU will be adjusted to reflect any changes in program design and accounting classifications during the program.
- Program exchange rate:
  - The program exchange rate of the Pakistani rupee to the U.S. dollar is set at 286.7091 rupee per one U.S. dollar.
  - Text Table 1 exchange rates (Units of currency per U.S. dollar) 1/ (As of June 26, 2023):
    - EUR 0.918274
    - JPY 143.118405
    - CNY 7.231199
    - GBP 0.785114
    - AUD 1.498464
    - CAD 1.316900
    - THB 35.200194
    - MYR 4.676498
    - SGD 1.352850
    - INR 82.008266
    - SAR 3.750498
    - SDR 0.749411
- Key definitions (selected):
  - General government: central (federal) government and local (provincial) governments, excluding state-owned enterprises; includes new funds or special budgetary or extra-budgetary entities of a fiscal nature per the IMF’s Manual on Government Finance Statistics 2014.
  - Net international reserves (NIR) of the SBP: U.S. dollar value of difference between usable gross international reserve assets and reserve-related liabilities, evaluated at program exchange rates.
  - Usable gross international reserves: holdings of foreign currencies; holdings of SDRs; reserve position in the IMF; holdings of fixed and variable income instruments. Exclusions listed (claims on residents; assets in nonconvertible currencies; precious metals; illiquid assets; pledged/collateralized assets; assets not readily available for intervention; balances at foreign branches of non-investment rated domestic banks).
  - Reserve-related liabilities: foreign exchange liabilities to residents (except general government) or nonresidents, including (i) foreign currency liabilities with remaining maturity of one year or less (excluding liabilities to general government); (ii) foreign exchange liabilities arising from derivatives positions on a net outstanding basis; (iii) outstanding IMF credits to Pakistan; (iv) foreign exchange deposits with the SBP of specified foreign and domestic financial entities. Excludes SDR allocations and accrued interest on reserve-related liabilities.
  - Aggregate net position in foreign exchange derivatives: net positions in forwards and futures in foreign currencies of SBP and general government vis-à-vis the domestic currency (including forward leg of currency swaps).
  - Gross sale and net purchase of foreign exchange: defined as outright and swap sales/purchases by the SBP to/from banks in the interbank market measured on a net daily basis.
  - Net domestic assets (NDA) of the SBP: difference between reserve money (RM) and NIR of the SBP (NIR valued at program exchange rate and expressed in Pakistani rupee).
  - Reserve money (RM): sum of (i) currency outside schedule banks; (ii) schedule banks’ domestic cash in vaults; (iii) schedule banks’ required and excess rupee and foreign exchange deposits with the SBP; (iv) deposits of the rest of the economy with the SBP, excluding those held by the federal and provincial governments and the SBP staff retirement accounts.
  - General government primary budget deficit (excluding grants): monitored quarterly as overall budget deficit (excluding grants) minus consolidated interest bill of federal and provincial budgets; overall budget deficit (excluding grants) measured as cash deficit from below the line comprising net external budget financing (excluding valuation changes), change in net domestic credit from banking system (cash basis), change in net domestic nonbank financing, and total external grants.
- Adjustment mechanisms (selected):
  - NIR floor (end-December 2023 test date) will be adjusted upward/downward by the cumulative excess/shortfall in cash inflows usable for government budget financing relative to projected inflows; downward adjustment limited to a maximum of US$2,000 million for December 2023 test date.
  - NDA ceiling adjusted in line with the NIR target adjustment mechanism evaluated at the program exchange rate; upward adjustment of NDA limited to the same maximum adjustor limit set for NIR.
  - Ceiling on general government primary budget deficit (end-December 2023) adjusted cumulatively since start of fiscal year by:
    - a. shortfall/excess in external project financing for October-December 2023 relative to program projections (US$664 million for October-December 2023) evaluated in Pakistani rupee terms at actual average quarterly exchange rates (no adjustment for July-September 2023 where actual external project financing was US$333 million);
    - b. underexecution in targeted cash transfers (BISP) relative to indicative program targets (PRs 185.5 billion for July-December 2023);
    - c. excess in flow of power sector payment arrears above indicative program targets (PRs 385 billion for July-December 2023), excluding specified non-recoveries and excess line losses relative to their projections (PRs 255 billion and PRs 76 billion respectively for July-December 2023);
    - d. excess in flow of tax refund arrears relative to their indicative program targets (PRs 43 billion for June-December 2023).

*Sources: Pakistani authorities; Fund staff estimates.*

### 20.      Net government budgetary borrowing from the SBP (including provincial governments)

### 20.      Net government budgetary borrowing from the SBP (including provincial governments)

### Definition and scope
- Net government budgetary borrowing from the SBP is defined as SBP claims on the general government minus general government deposits with the SBP.
- SBP claims on the general government include:
  - government securities,
  - treasury bills,
  - treasury currency,
  - debtor balances.
- SBP claims exclude:
  - accrued profits on government securities.
- Government deposits with the SBP exclude the Zakat Fund.

### B.6. Ceiling on the Amount of Government Guarantees
- The ceiling applies to the stock of publicly guaranteed debt for which guarantees have been issued by the central government.
- It includes both domestic and external government guarantees.
- External government guarantees will be converted into Pakistani rupees at the program exchange rate.
- The ceiling excludes guarantees issued by the Ministry of Finance for the SBP borrowing from the IMF.

### B.7. Floor on Targeted Cash Transfers Spending (BISP)
- The floor applies to the cumulative targeted cash transfers spending by the Benazir Income Support Program (BISP), i.e., all spending on BISP programs.

### C. Continuous Performance Criteria

#### C.1. No New Flow of SBP’s Credit to General Government
- There should be no new flow of SBP’s direct credit to the general government, including in the form of purchases of public debt securities on the primary market.
- The performance criterion applies on a continuous basis throughout the program period.
- Objective: protect the capability of the central bank to pursue its price stability objective.

#### C.2. Zero Ceiling on the Accumulation of External Payment Arrears by the General Government and SOEs
- External payment arrears are defined as all unpaid debt-service obligations (payments of principal and interest) of the general government (federal and provincial government, and SBP), and state-owned enterprises to nonresidents arising in respect of public sector loans, debt contracted or guaranteed, including unpaid penalties or interest charges associated with these obligations that are beyond 30 days after the due date.
- The definition of debt, for the purposes of the SBA, is set out in ¶8 of 2020 Guidelines on Public Debt Conditionality in Fund Arrangements.
- The ceiling on the accumulation of external payment arrears is set at zero.
- The performance criterion applies on a continuous basis throughout the program period.

#### C.3. Other Continuous Performance Criteria
During the program period, Pakistan will not:
- impose or intensify restrictions on the making of payments and transfers for current international transactions;
- introduce or modify multiple currency practices (MCPs) excluding those MCPs arising from the introduction and/or modifications of the multiple-price foreign exchange auction system operating in line with IMF staff advice with the objective of supporting flexible market-determined exchange rate;
- conclude bilateral payment agreements that are inconsistent with Article VIII of IMF Articles of Agreement; and
- impose or intensify import restrictions for balance of payments purposes.

### D. Indicative Targets

#### D.1. Floor on General Government Budgetary Health and Education Spending
- The floor applies to the cumulative budgetary spending on health and education by the federal and provincial governments.

#### D.2. Floor on Net Tax Revenues Collected by the Federal Board of Revenue (FBR)
- Net tax revenues collected by the FBR are defined as the sum of revenues collected from:
  - (i) general sales tax (GST) on goods (including GST on services collected in Islamabad Capital Territory);
  - (ii) customs duties, customs registration fees and levies;
  - (iii) excise duties on imported products;
  - (iv) excise duties on domestic products;
  - (v) levies (toll) on oil derivatives;
  - (vi) other proceeds and fees;
  - (vii) sales tax; and
  - (viii) unclassified revenues (including income tax) minus the tax refunds.
- Net revenue collection is defined, for each test date, as the cumulative sum of net revenues collected since the beginning of the respective fiscal year.
- The floor on the collection of net revenues by the FBR is measured quarterly based on cumulative end-of-quarter data.

#### D.3. Ceiling on Net Accumulation of Tax Refund Arrears
- The ceiling applies to the cumulative flow of tax refund arrears.
- The stock of tax refund arrears is defined as the amount of tax refund claims that have not been settled (through a cash refund, netting out against obligations of taxpayers, payment with a government bond/promissory note or an official decision to reject the claim) within a specified time period after the tax refund claim has been submitted to the FBR.
- The stock of income tax refund arrears is PRs 215.2 billion as of end-May 2023, and the net accumulation of income tax refund arrears will be counted from the starting point of PRs 215.2 billion.
- The stock of sales tax arrears at end-May 2023 is PRs 183.8 billion, and the net accumulation of sales tax refund arrears will be counted from the starting point of PRs 183.8 billion.

#### D.4. Ceiling on Power Sector Payment Arrears
- Power sector payment arrears are defined as power sector payables in arrears that arise from:
  - (i) non-recoveries from supply to Azad Jammu and Kashmir (AJ&K), industrial support package, other federal and provincial governments including FATA, private consumers, and Baluchistan Tube Wells;
  - (ii) accrued markup from the servicing of PHPL;
  - (iii) line losses and non-collections that are not recognized by NEPRA;
  - (iv) GST non-refunds;
  - (iv) late payment surcharges;
  - (v) delays in subsidy payments; and
  - (vi) delays in tariff determinations.

*Source: 1pakea2024002 - 20.      Net government budgetary borrowing from the SBP (including provincial governments)*

### 30.      To effectively monitor the program performance, the authorities will provide all the

### Content unit: 1pakea2024002 - 30.      To effectively monitor the program performance, the authorities will provide all the

### Monitoring and reporting framework
- Authorities will provide all needed data to the IMF in line with Article VIII, Section 5 of the IMF Articles of Agreement.
- Performance under the program is monitored from data supplied by the SBP, Ministry of Finance, FBR, Pakistan Bureau of Statistics, Ministry of Energy (Power and Petroleum Division), and other agencies as outlined in Table 2.
- Authorities will report on an ongoing/continuous basis any non-observance of continuous PCs and promptly transmit any data revisions and other information necessary to monitor the arrangement with the IMF.

### Key projected financing flows (Table 1 highlights)
- Multilateral and bilateral disbursements: 3,832 (Jul-Sep 2023) and 5,893 (Oct-Dec 2023 Est./Proj.) (Millions of U.S. dollars)
- Of which: in cash: 3,693 and 5,647 (Millions of U.S. dollars)
- Of which: Saudi oil facility and IDB commodity loans: 400 and 350 (Millions of U.S. dollars)
- Of which: project support: 333 and 664 (Millions of U.S. dollars)
- International bond issuance: 2/2 and 80 (Millions of U.S. dollars)
- Gross inflows: 3,860 and 6,493 (Millions of U.S. dollars)
- Of which: in cash: 3,721 and 6,247 (Millions of U.S. dollars)
- Memo: New loans/deposits at SBP 3/1,0000 (note: formatting preserved as in source)

### Selected monitoring and reporting requirements (SBP and other agencies)
- State Bank of Pakistan (SBP) — key items and timing:
  - SBP balance sheet summary: Weekly, First Thursday of the following week.
  - SBP balance sheet summary at program exchange rates; and by official exchange rates: Monthly, Within 15 days of the end of each month.
  - Monetary survey (banking system balance sheet; consolidated balance sheet of commercial banks): Monthly, Within the first 30 days of each month.
  - International reserves (by program exchange rates and actual official exchange rates): Daily, The following working day.
  - Inflows/outflows into/out of Naya Pakistan Certificates: Daily, The following working day.
  - Foreign exchange market data (market exchange rates; weighted average customer exchange rate; trade volume; high/low interbank/KERB): Daily/Monthly, Within one day/monthly within five working day.
  - Detailed interbank spot and forward market transaction statistics (values, number of transactions, banks involved, averages, standard deviations): Daily, Within one day.
  - Outstanding swap/forward positions by maturity buckets and counterparties: Monthly, Third working day of the following month.
  - Net International Reserves at program exchange rates including currency breakdown and nostro balances: Quarterly, Seventh working day after quarter end.
  - External financing (foreign assistance received and projections for coming four quarters, categorized by program/project and amounts in cash): Quarterly, Within 15 days of the end of each quarter.
  - Banking sector stress tests (exchange rate, liquidity, credit risk) results: Quarterly, Within 60 days.
  - Workers’ remittances: Monthly, Within 25 days of the following month.
  - Balance of payments (detailed export and import data; detailed BOP): Monthly, Within 28 days of the end of each month.
  - Privatization receipts (PC Fund account balances and flows): Quarterly, Within seven days of the end of each quarter.

- Ministry of Finance (MOF) — key items and timing:
  - External debt (disbursements and stock of outstanding short-term, medium- and long-term external debt of government, SBP, and state-owned companies; arrears; guarantees): Monthly, Within 25 days of the following month.
  - External financing (foreign assistance received and projections, cash and in kind): Quarterly, Within 15 days of the end of each quarter.
  - List of all disbursements and amortization payments for external budget financing and external grants (above US$3 million or equivalent): Quarterly, Within 25 days of the end of each quarter.
  - Gross disbursements and amortization of Naya Pakistan Certificates by residents: Quarterly, Within 25 days of the end of each quarter.
  - Domestic debt composition: Monthly, Within 25 days of the end of each month.
  - T-Bill and PIB bid sheet from domestic debt auctions: Daily, Within 1 day of each T-Bill and PIB auction.
  - State budget (federal government): Monthly, Within 30 days of the end of each month.
  - Consolidated general government fiscal outcomes broken down by province: Quarterly, Within 45 days of the end of each quarter; Annual, Within 180 days of the end of each year.
  - Federal government fiscal financing plan for the coming 12 months: Monthly, One month in advance.
  - Total general government budgetary spending on health and education broken down by federal and provincial governments: Monthly, Within 15 days of the end of each month.
  - Stock of government borrowing from the SBP: Quarterly, Within the first five days of each quarter.

- Pakistan Bureau of Statistics (PBS):
  - SPI, CPI, WPI detailed monthly price indices: Monthly, Within five days of the following month.
  - CPI Index of core inflation: Monthly, Within 21 days of the end of each month.

- Federal Board of Revenue (FBR):
  - Total revenue collected by tax and customs administrations, revenue by individual tax, social contributions: Monthly, Within seven days of the end of each month.
  - Tax arrears by category and by type of tax: Monthly, Within seven days of each month.
  - All tax refund claims in arrears, itemized by tax category: Monthly, Within seven days of the end of each month.
  - Automated GST refunds detailed data; number/value of automated refunds; average waiting time (days): Quarterly, Within seven days of the end of each month.
  - Large taxpayers unit (LTU) data: Quarterly, Within seven days of the end of each month.
  - Import data (total value of recorded imports; duty-paid recorded imports; transaction counts): Quarterly, Within 30 days of the end of each quarter.
  - Audit outcomes (percentage of selected companies and revenue identified from audits): Quarterly, Within 45 days of the end of each month (monthly data provided on a quarterly basis).

- Ministry of Water and Power / Power sector:
  - Key Power Sector Statistics, Cumulative Monthly Subsidy Position (Rs. Billion), PEPCO month-end payables/receivables and aging, DISCO-wise receivables, CPPA/PEPCO month-wise consolidated cash flow, AT&C statistics, DISCOs consolidated income statement, net electrical output & power purchase price by source (GWh), working capital loans: Monthly/Quarterly frequency as specified; timing ranges include Within 30 days and Within 45 days depending on item.
  - Quarterly quantitative targets on DISCO performance (technical/distribution losses, collection from current consumers, recoveries of arrears): Quarterly, Within 30 days from the end of the quarter.

- Ministry of Petroleum and Natural Resources:
  - Gas supply and sales by consumer category: Quarterly on monthly frequency, Within 60 days from the end of the quarter.
  - Gas prices by consumer category: Biannually, Within 30 days of price notification.
  - UFG losses: Quarterly, Within 60 days from the end of the quarter.

- Benazir Income Support Programme (BISP):
  - Targeted cash transfers coverage (number of beneficiaries paid) and payment by all BISP programs: Quarterly, Within 30 days from the end of the quarter.

- Financial statements for state-owned enterprises (Pakistan Railways, Pakistan Steel Mills, Pakistan International Airline): Quarterly, Within 30 days from the end of the quarter.

### Recent developments and economic outlook (authorities’ statement)
- Political and governance:
  - Newly elected government came into power in March 2024 after almost seven months of a caretaker government; coalition consists largely of the same parties that implemented prior program actions.
  - Elections were followed by litigation in some constituencies; initial decisions in favor of the sitting government reinforced legitimacy and stability.
  - Socio-political tensions attenuated following elections and confidence returned following the Staff Level Agreement (SLA) for the completion of the second review.

- Inflation and monetary policy:
  - Core inflation hovering around 15 percent from its peak of 38 percent in May 2023.
  - SBP maintained the policy rate at 22 percent at its meeting on March 18, 2024 — the same rate since June 2023.
  - SBP commitment: bring inflation down to the medium target of 5-7 percent in the second half of 2025 through data-driven and appropriately tight monetary policy stance.

- External sector and current account:
  - Pakistan ran a current account deficit of US$ 17.5 billion in FY22, which was about 4.7 percent of the GDP.
  - Current account posted a surplus of US$ 619 million in March 2024.
  - Monthly average current account deficit: US$ 1.46 billion in 2022 and US$ 0.19 billion in 2023.
  - March 2024 surplus: six times higher than the previous month and the highest monthly surplus in the last nine years.
  - Nine months of FY24 (July 2023–March 2024) current account balance: deficit of US$ 0.5 billion (0.15 percent of GDP) compared with a deficit of than US$ 4 billion (1.15 percent of GDP) in the corresponding period of the last FY.
  - Improvement driven by a decline in the trade deficit in goods, declining exports and imports of goods and services, and improvement in balance on primary income due to lower primary income debit.
  - Authorities expect current account to remain well within the sustainable limit in FY24.

- Fiscal performance:
  - FBR tax collection increased by 30 percent during July–March FY24 compared to corresponding period last FY.
  - Net federal revenues in July–February grew by 51 percent.
  - Total expenditure increased by 45 percent during July–February FY24.
  - Current spending rose by 46 percent, primarily due to a 59 percent increase in markup payments.
  - Primary surplus in first eight months of FY24: (1.7 percent of the GDP) compared to 0.9 percent in corresponding period last FY.
  - Overall deficit in first eight months of current fiscal year: 3.0 percent of GDP against 2.8 percent of GDP last year (owing to higher costs of debt servicing).

- Growth and markets:
  - Strong growth in agriculture; recovery of large-scale manufacturing expected to continue during remaining months of FY24.
  - High-frequency indicators signaling continued growth.
  - Positive investor sentiment; Pakistan Stock Exchange (PSX) closed at a record high on April 22, 2024.
  - Authorities note sustained recovery depends on prudent policy stance and timely/adequate financial inflows to meet external gross financing needs.

### Program performance and policy priorities
- Program outcomes:
  - All seven performance criteria were met.
  - All four indicative targets and six structural benchmarks were met.
  - Authorities continue to work on an extended agenda of SOE reforms and privatization.

- Priority reforms and policy directions:
  - Increase tax-to-GDP ratio materially.
  - Expand the social safety net.
  - Reform and/or privatize SOEs.
  - Digitalize the economy.
  - Ensure financial sustainability of the energy sector.
  - Prioritize investment in human capital and critical infrastructure to prevent loss of development gains.
  - Early fiscal consolidation aimed to deliver sustained, inclusive economic growth and investment in social sectors.

- Institutional initiatives and external support:
  - Creation of the Special Investment Facilitation Council (SIFC) and Sovereign Wealth Fund (SWF) to enhance institutional ownership and coordination.
  - Continued technical assistance and capacity development from the Fund in monetary policy, tax policy, budgeting, and debt management.
  - World Bank and Asian Development Bank assisting in SOE governance and social protection areas.

- Authorities’ outlook:
  - Completion of the SBA seen as a significant milestone toward economic stability and growth.
  - Authorities seek to maintain momentum and undertake reforms to improve living standards of around 250 million people of Pakistan.
  - Authorities look forward to continued support from the Executive Board, management, staff, and bilateral partners.

*Source: Statement by Mr. Bahador Bijani and Mr. Saif Ullah Dogar, April 29, 2024 (excerpts and monitoring tables as provided in the content unit).*

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_Source: https://www.imf.org/-/media/files/publications/cr/2024/english/1pakea2024002.pdf_