## _cr15278

## Source details

**Canonical URL:** [_cr15278](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2015/_cr15278.pdf)

## Other formats

- [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2015/_cr15278.pdf.md)
- [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2015/_cr15278.pdf.json)

---

### Executive summary — program status
- Extended Arrangement under the Extended Fund Facility (EFF): 36 month, SDR 4,393 million (425 percent of quota) Extended Arrangement approved by the Executive Board on September 4, 2013.
- Seventh review completed on June 26, 2015; total disbursement to date: SDR 2,880 million.
- Eighth tranche amounting to SDR 360 million will be available upon completion of this review.
- Discussions took place in Dubai during July 29–August 7, 2015. Mission head: H. Finger.

### Program performance (end-June 2015) — compliance and deviations
- Overall: Two end-June 2015 quantitative Performance Criteria (PCs) and three indicative targets (ITs) were missed; deviations described as minor or temporary and corrective actions taken.
- Met:
  - Monetary PCs.
  - Net international reserves (NIR) PC: comfortably met by US$441 million.
  - SBP net swaps/forward position: narrowed in line with program target.
  - SBP marginal over-performance on the Net Domestic Assets (NDA) PC by PRs 19 billion.
- Missed or missed narrowly:
  - Fiscal PC: general government budget deficit (excluding grants) missed by PRs 102 billion (close to 0.4 percent of GDP); FY2014/15 overall deficit: 5.4 percent of GDP (down from 5.7 percent of GDP in FY2013/14).
  - Federal tax revenues IT: missed by PRs 103 billion (about 0.4 percent of GDP).
  - Social cash transfers IT (BISP): missed by a small margin on spending, but targeted number of beneficiary households achieved.
  - Power sector arrears IT: missed due to implementation delays; most elements implemented subsequently and the September target remains achievable.
  - Government borrowing from the SBP PC: missed by PRs 28 billion; net government borrowing from the SBP recorded at PRs 1747 billion at end-August 2015 (prior action reduced borrowing to below PRs 1830 billion at end-August).

### Macroeconomic outlook and key indicators
- Growth and inflation:
  - Real GDP growth: projected to expand by about 4.5 percent in this fiscal year (from about 4.2 percent in FY 2014/15).
  - Headline consumer price inflation: declined to 1.7 percent y-o-y in August 2015; expected to rebound to about 4.7 percent on average in the current fiscal year.
  - Core inflation: 4.4 percent y-o-y in August 2015.
- External sector and reserves:
  - Current account: deficit expected to narrow to around ½ percent of GDP in the current fiscal year.
  - Foreign exchange reserves: US$13.5 billion at end-June 2015 (covering more than three months of imports and 63 percent of the Assessing Reserve Adequacy (ARA) metric); expected to reach US$14 billion by end-September 2015; reserve coverage expected to reach about 78 percent of the ARA metric by end of FY2015/16.
  - SBP spot purchases over the quarter: US$950 million; SBP spot purchases in FY2014/15 netted some US$3.9 billion.
- Banking and credit:
  - Private sector credit growth: decelerated to 5.6 percent y-o-y in June.
  - Banking sector: capital adequacy ratio (CAR) increased to 17.2 percent in 2014/15 (from 15 percent last fiscal year); all banks now comply with capital adequacy norms after a rights issue in one previously noncompliant bank.
  - Nonperforming loans (NPLs): 12.4 percent in June 2015 (12.8 percent in March 2015 in other references).

### Key risks and upside potentials
- Downside domestic risks: slippages in policy implementation, legal challenges to power surcharges, fragile political and security conditions.
- Downside external risks: protracted slower growth in key advanced and emerging economies (including possibly a sharp slowdown in China), persistent U.S. dollar appreciation with limited rupee variation, increased volatility in oil prices affecting energy subsidy reforms.
- Upside potentials: fast implementation of CPEC projects and improved security situation; removal of international sanctions on Iran could improve medium-term energy supply.

### China–Pakistan Economic Corridor (CPEC) — macro-financial implications
- Investment pipeline: overall investment of US$45 billion; energy US$33.8 billion; transport infrastructure US$10.6 billion.
- Capacity additions and timeline:
  - Priority energy projects scheduled to add about 10 GW of capacity by 2017–18 (by 2020 for hydro projects); further projects planned to add another 6.5 GW in due course.
  - Transport infrastructure projects expected completed by 2017–18.
- Financing modalities:
  - Transport projects: government-to-government longer-term concessional loans, executed within public sector development program.
  - Energy projects: financed by FDI and commercial loans from Chinese financial institutions to Chinese investors, with government guarantees for IPPs through PPAs at NEPRA-determined tariffs.
- Conditions to reap benefits: sound project evaluation, prioritization, procurement and public financial management; PPAs structured to mitigate fiscal risks; prioritization within an overall fiscal envelope aimed at gradual debt reduction.

### Fiscal outlook and policy measures (FY2015/16)
- Authorities' FY2015/16 targets: deficit target of 4.3 percent of GDP (including an adjustor of 0.3 percent of GDP for critical one-off spending).
- Staff assessment of risks to FY2015/16 deficit target:
  - Estimated gap of 0.2 percent of GDP from lower commodity prices, lower domestic inflation, and base effects from FY2014/15 deviations; other risks could lead to potential deviation up to 0.3 percent of GDP.
- Authorities' measures and commitments:
  - Reallocate current spending to accommodate additional support for farmers.
  - If necessary, bring forward plans to eliminate tax concessions and exemptions slated for FY2016/17 (including on income tax and GST).
  - Maintain the usual practice of reducing expenditure allocations in the first nine months to create a reserve against deviations.
  - Provincial commitments: total provincial spending to be maintained at 6.5 percent of GDP and total provincial tax and nontax revenues projected at 1.1 percent of GDP; provincial finance secretaries agreed to increase provincial budget surpluses consistent with the program.
  - Institutional step: federal and provincial Finance Secretaries to hold monthly meetings to review fiscal performance and coordinate spending priorities.

### Tax administration, GST modernization, and revenue mobilization
- GST refund claims:
  - Lowered the number of outstanding GST refund claims by over 75 percent as of end-June 2015.
  - Reduced the stock of unpaid GST refund claims to PRs 88.7 billion, from its peak of PRs 113.2 billion in November 2014.
  - FBR will formulate and implement a plan to resolve unpaid GST refund claims; target to bring stock to about PRs 20 billion (consistent with no more than a three-month flow of claims).
- Tax administration and coverage:
  - Issued 200,000 first notices to file income tax returns by end-June 2015 (target met).
  - Increase in personal income tax filers by 190,000 since mid-2013.
  - Current filing coverage (as reported): Personal income tax filers: 912,000 out of 3.6 million registered taxpayers; Corporate income tax filers: 25,000 out of 60,000 companies; Retailers registered for GST: 178,000 out of about 1.4 million retailers.
  - Tax-to-GDP ratio at 11 percent; objective to raise to 14.5 percent by FY2019/20.
- Reforms and enforcement:
  - Prior action: require all government suppliers to be on the current list of active income and GST taxpayers.
  - Integration of NTN with CNIC database (SB, end-September 2015).
  - FBR adopting a risk-based audit policy (SB, end-September 2015).
  - Draft legislation against “benami” transactions to be submitted by end-January 2016 (new SB).
  - Passage of legislation limiting administrative tax exemptions and concessions to be temporary and applicable only in exceptional circumstances.

### Monetary and exchange rate policies; SBP governance
- Objectives: build external buffers, maintain price stability, strengthen SBP independence, and improve monetary policy tools.
- Interest rate corridor (implemented May 2015):
  - Reverse repo rate (ceiling): 6.5 percent.
  - Repo rate (floor): 4.5 percent.
  - New policy rate (target for short-term money-market rates): 6 percent.
- Policy actions and results:
  - Reverse repo rate lowered by cumulative 350 bps since November 2014.
  - SBP drew on a currency swap line with China by $500 million in the last quarter.
  - Reserve money grew by 9.9 percent y-o-y in June 2015; broad money grew by 13.2 percent y-o-y in June 2015.
- SBP governance and legal changes:
  - Revised amendments to the SBP Act submitted; amendments approved by the National Assembly in August 2015 and expected to be enacted by end-September 2015 (SB), following Senate approval.
  - Plan to address remaining recommendations of the 2013 Safeguards Assessment report by June 2016.
  - SBP published strategic plan for 2016-20 in August 2015 with steps toward inflation targeting and strengthened research and transparency.

### Financial sector policies and stability
- Capitalization and supervision:
  - Following recapitalization through a rights issue in July 2015, all banks became CAR-compliant; CAR increased to 17.2 percent in 2014/15.
  - Five small banks remain below minimum requirement for paid-up capital (MCR) but CAR-compliant; plan to raise equity by end-2015 or privatize affected public banks by June 2016.
- Asset quality and recovery:
  - Nonperforming loans: 12.4 percent in June 2015; 12.8 percent in March 2015 noted elsewhere; provisioning has increased.
  - Amendments to foreclosure clauses in Financial Institutions (Recovery of Finances) Ordinance 2001 under enactment to improve NPL recovery.
  - Deposit Protection Fund (DPF) Act finalized; on track for enactment by end-February 2016 (modified SB); corporate infrastructure expected operational by March 2016.
- Regulatory enhancements:
  - SBP strengthening supervision of financial conglomerates; contingency planning for systematically important banks; pursuing Futures Trading Bill and stronger SECP regulatory powers; phased implementation of Basel III capital and liquidity standards.
  - CAR requirement to increase to 10.25 percent by December 2015, progressing to 12.5 percent by 2019.

### Energy sector reforms — arrears, tariffs, and operational measures
- Power sector payables and arrears:
  - Payables in the power sector stand at PRs 313 billion at end-June 2015; stock of past arrears including PHCL in STCF facility remained at PRs 335 billion at end-June 2015.
  - Implementing agreed power surcharges, including to service the debt in the power holding company: PRs 335 billion at end-June 2015.
  - Arrears reduction target: reduce accumulation of payables from PRs 209 billion in FY 2014/15 to under PRs 100 billion in FY 2015/16, with view to further halving new arrears by FY2018/19.
  - Missed end-June 2015 indicative target on the flow of power sector arrears by PRs 15 billion (0.05 percent of GDP) due to temporary delays; September target remains achievable after recoveries.
- Tariffs and surcharges:
  - Current notified weighted average electricity tariff: PRs 11.45/kWh for all classes of consumers.
  - FY 2014/15 tariff notified effective from June 10, 2015, includes weighted average tariff PRs 9.91/kWh; rationalization surcharge PRs 1.54/kWh; debt servicing surcharge (DSS) PRs 0.43/kWh; Neelum-Jhelum surcharge PRs 0.1/kWh.
  - Commit to protecting revenue by adjusting prices as needed to ensure full recovery of costs from consumers; finalize multi-year tariff framework by end-November 2015 (SB).
- Operational and governance measures:
  - Enforce DISCO performance through quarterly loss-reduction, collection, and recovery targets (mid-October 2015 new SB).
  - Reduce technical losses and improve collections; overall losses in FY2014/15 remained at 18.7 percent; collections declined on average to 88.1 percent.
  - Privatization and restructuring of DISCOs and GENCOs as part of arrears reduction plan and to improve efficiency.

### Privatization and PSE restructuring
- Objectives: reform or privatize PSEs to limit poor performance and improve public sector resource allocation.
- Recent outcomes and setbacks:
  - Planned sale of Heavy Electrical Complex (HEC) in May 2015 cancelled as the winning bidder could not provide funds.
  - National Power Construction Co. (NPCC) bidding finalized in August raising US$25 million (transaction expected to complete by end-September 2015).
- Timeline of selected transactions and targets (selected items preserved verbatim):
  - United Bank Limited (UBL) — Sale of 19.6 percent — June 2014.
  - Pakistan Petroleum Limited (PPL) — Sale of 5 percent — June 2014.
  - Allied Bank Limited (ABL) — Sale of 10 percent — December 2014.
  - Habib Bank Limited (HBL) — Sale of 42 percent — April 2015.
  - Pakistan Steel Mills (PSM) — Strategic & Asset Sale — End-March 2016.
  - Faisalbad Electric Supply Company (FESCO) — Strategic & Asset Sale — End-September 2016.
  - Additional DISCO and generation company transactions scheduled through end-2016.
- Specific PSEs:
  - Pakistan International Airlines (PIA): due diligence completed in August 2015; expressions of interest for strategic investors to be solicited before end-December 2015 (modified SB).
  - Pakistan Steel Mills (PSM): due diligence completed August 2015; expected privatization by end-March 2016.

### Program financing, reserves, and Fund exposure
- Pakistan’s program financing needs for the remainder of the program: estimated at US$6.2 billion or 2.2 percent of GDP; fully covered for the current fiscal year.
- Disbursements from multilateral and bilateral partners (including about US$2 billion from the World Bank and the ADB) expected to help cover financing needs.
- Fund exposure: Fund’s exposure increased with disbursement upon approval of the seventh review, reaching SDR 2.9 billion (about US$4.1 billion and 6.2 percent of total external debt) by end-June 2015.
- Reserves situation: improved to cover more than three months of imports but remain below adequacy norms such as the ARA metric.

### Program monitoring, structural benchmarks, and requested actions
- Staff supports completion of the eighth review, waivers for nonobservance of end-June PCs on the budget deficit and government borrowing from the SBP, and modification of the end-September 2015 PC on NDA.
- Staff recommends establishment of end-December 2015 PCs, setting of three new structural benchmarks, and revision to timeline of structural benchmarks as proposed in the MEFP.
- Selected structural benchmarks and deadlines (selected items preserved verbatim):
  - Merge NTN system with CNIC database (end-September 2015) — Status: target.
  - Adopt risk-based audit policy (end-September 2015).
  - Appoint risk management staff and begin publishing quarterly debt management risk reports (end-October 2015).
  - Enact amendments to the SBP law to give SBP autonomy (end-September 2015).
  - Make the improved interest rate corridor operational (end-September 2015) — Status: Met.
  - Enact the Credit Bureau Act (end-November 2015) — Status: Met in August 2015.
  - Enact the Deposit Protection Fund Act (end-December 2015; rescheduled end-February 2016).

### Monitoring framework — data provision commitments
- Performance monitored from data supplied by SBP, Ministry of Finance, and Ministry of Water and Power with specified frequency and timing for a wide array of fiscal, monetary, balance of payments, tax, and power sector indicators.
- Examples of reporting commitments and timing (selected):
  - SBP balance sheet: Weekly summary — First Thursday of the following week.
  - International reserves: Daily — The following working day.
  - Monetary survey: Monthly — Within the first 30 days of each month.
  - FBR revenue collection: Monthly — Within 7 days of the end of each month.
  - Key Power Sector Statistics: Monthly — Timing per template.
  - Privatization receipts: Quarterly — Within seven days of the end of each quarter.

*Source: IMF staff report — EXECUTIVE SUMMARY and associated MEFP and TMU excerpts (content unit: _cr15278).*

### EXECUTIVE SUMMARY

### _cr15278 - EXECUTIVE SUMMARY

### Program summary and status
- Extended Arrangement under the Extended Fund Facility (EFF): 36 month, SDR 4,393 million (425 percent of quota) Extended Arrangement approved by the Executive Board on September 4, 2013.
- Seventh review completed on June 26, 2015; total disbursement to date: SDR 2,880 million.
- Eighth tranche amounting to SDR 360 million will be available upon completion of this review.
- Discussions took place in Dubai during July 29–August 7, 2015. Mission head: H. Finger. Staff included F. Salman, A. Shahmoradi, A. Tudyka, K. Al-Saeed, S. Cevik, R. Tchaidze, T. Mirzoev, H. Zaidi, T. Alam, and S. Mahmood (Senior Advisor, OED).

### Program performance (end-June 2015)
- Overall: Two end-June 2015 quantitative Performance Criteria (PCs) and three indicative targets (ITs) were missed; deviations described as minor or temporary and corrective actions taken.
- Monetary PCs: met.
- Fiscal PC: general government budget deficit (excluding grants) missed by PRs 102 billion (close to 0.4 percent of GDP); FY2014/15 overall deficit: 5.4 percent of GDP (down from 5.7 percent of GDP in FY2013/14).
- Federal tax revenues IT: missed by PRs 103 billion (about 0.4 percent of GDP).
- Social cash transfers IT (BISP): missed by a small margin on spending, but targeted number of beneficiary households was achieved.
- Power sector arrears IT: missed due to implementation delays in the arrears reduction plan; most elements implemented subsequently and the September target remains achievable.
- Net international reserves (NIR) PC: comfortably met by US$441 million. SBP spot purchases over the quarter: US$950 million.
- SBP net swaps/forward position: narrowed in line with program target.
- Government borrowing from the SBP PC: missed by PRs 28 billion; net government borrowing from the SBP recorded at PRs 1747 billion at end-August 2015 (prior action reduced borrowing to below PRs 1830 billion at end-August). Despite this, the SBP marginally over-performed on the Net Domestic Assets (NDA) PC by PRs 19 billion.
- Structural benchmarks: end-September SB on operationalizing SBP interest rate corridor met ahead of time; end-November SB to enact the Credit Bureau Bill met ahead of time.

### Macroeconomic outlook and key indicators
- Real GDP growth: projected to expand by about 4.5 percent in this fiscal year (from about 4.2 percent in FY 2014/15).
- Inflation: headline consumer price inflation declined to 1.7 percent y-o-y in August 2015; expected to rebound to about 4.7 percent on average in the current fiscal year.
- Private sector credit growth: decelerated to 5.6 percent y-o-y in June.
- Banking sector: capital adequacy ratio (CAR) increased to 17.2 percent in 2014/15 (from 15 percent last fiscal year); all banks now comply with capital adequacy norms after a rights issue in one previously noncompliant bank; banking system profitability growth continued; liquidity adequate.
- Current account: deficit expected to narrow to around ½ percent of GDP in the current fiscal year.
- Foreign exchange reserves: US$13.5 billion at end-June 2015 (covering more than three months of imports and 63 percent of the Assessing Reserve Adequacy (ARA) metric); expected to reach US$14 billion by end-September 2015; reserve coverage expected to reach about 78 percent of the ARA metric by end of FY2015/16.

### Key risks
- Domestic downside risks: slippages in policy implementation, ongoing legal challenges to power surcharges, fragile political and security conditions.
- External downside risks: protracted slower growth in key advanced and emerging economies (including possibly a sharp slowdown in China), persistent U.S. dollar appreciation with limited rupee variation undermining competitiveness, increased volatility in oil prices affecting energy subsidy reforms.
- Upside potentials: fast implementation of CPEC projects and improved security situation could boost investment and growth; removal of international sanctions on Iran could have positive medium-term impact on energy supply to Pakistan.

### China–Pakistan Economic Corridor (CPEC) — macro-financial implications (Box 1)
- Initial prioritized investment pipeline under CPEC: overall investment of US$45 billion; energy US$33.8 billion; transport infrastructure US$10.6 billion.
- Timeline and capacity: transport infrastructure projects expected completed by 2017–18; priority energy projects scheduled to add about 10 GW of capacity by 2017–18 (by 2020 for hydro projects); further projects planned to add another 6.5 GW of capacity in due course.
- Financing modalities: transport projects financed exclusively by government-to-government longer-term concessional loans and executed within the public sector development program; energy projects financed by FDI and commercial loans from Chinese financial institutions to Chinese investors, with government guarantees for IPPs through PPAs at NEPRA-determined tariffs.
- Risks and conditions to reap benefits: potential temporary import surge offsetting demand-driven expansion; medium-term supply-side benefits from higher power capacity and better infrastructure; need for sound project evaluation, prioritization, implementation, strong procurement and public financial management, PPAs structured to mitigate fiscal risks, and prioritization to remain within an overall fiscal envelope aimed at gradual debt reduction.

### Fiscal outlook and policy measures (FY2015/16)
- Authorities' FY2015/16 targets: deficit target of 4.3 percent of GDP (including an adjustor of 0.3 percent of GDP for critical one-off spending).
- Risks to FY2015/16 deficit target: potential renewed provincial spending overruns; effects of falling international commodity prices and lower domestic inflation on customs duties and taxes; additional support for farmers; base effects from FY2014/15 deviations; minor changes in revenue measures during parliamentary process.
- Staff assessment: estimated gap of 0.2 percent of GDP from the latter three factors; other risks could lead to potential deviation up to 0.3 percent of GDP.
- Authorities' measures and commitments:
  - Reallocate current spending to accommodate additional support for farmers.
  - If necessary, bring forward plans to eliminate tax concessions and exemptions slated for FY2016/17 (including on income tax and GST).
  - Maintain the usual practice of reducing expenditure allocations in the first nine months of the year compared to the budget to create a reserve against deviations.
  - Provincial commitments: total provincial spending to be maintained at 6.5 percent of GDP and total provincial tax and nontax revenues projected at 1.1 percent of GDP; provincial finance secretaries agreed to increase provincial budget surpluses consistent with the program.
  - Institutional step: federal and provincial Finance Secretaries to hold monthly meetings to review fiscal performance and coordinate spending priorities; authorities will update IMF staff on the outcome.

### Policy discussions and priorities
- Focus areas: (i) end-June 2015 fiscal performance and outlook for FY2015/16; (ii) addressing power sector arrears; (iii) saving the windfall from falling oil prices to strengthen external buffers; (iv) progress on safeguarding financial stability; (v) structural reforms in the energy sector, privatization, central bank independence, anti-money laundering framework, public debt management, trade, and business climate to unlock long-term growth potential.
- Outreach: press release and joint press conference with the finance minister and central bank governor.

*Source: IMF staff report — EXECUTIVE SUMMARY (September 16, 2015).*

### 9.      The authorities will deal with the backlog on GST refund claims at a faster pace and

### 9.      The authorities will deal with the backlog on GST refund claims at a faster pace and modernize the GST regime

### GST refund claims and GST modernization
- Lowered the number of outstanding GST refund claims by over 75 percent as of end-June 2015.
- Reduced the stock of unpaid GST refund claims to PRs 88.7 billion, from its peak of PRs 113.2 billion in November 2014.
- FBR will formulate and implement a plan to resolve unpaid GST refund claims.
- Target: bring the stock of GST refund claims to a level consistent with no more than a three-month flow of claims (estimated at about PRs 20 billion).
- Authorities continue efforts to optimize the GST on goods and services in close coordination with provincial revenue authorities.

### Tax administration, coverage, and revenue mobilization
- Issued 200,000 first notices to file income tax returns by end-June 2015 (target met) to broaden the taxpayer base.
- Increase in personal income tax filers by 190,000 since mid-2013.
- Current filing coverage (as reported):
  - Personal income tax filers: 912,000 out of 3.6 million registered taxpayers.
  - Corporate income tax filers: 25,000 out of 60,000 companies registered with the Securities and Exchange Commission of Pakistan.
  - Retailers registered for GST: 178,000 out of about 1.4 million retailers.
- Tax-to-GDP ratio at 11 percent.
- FBR continuing efforts to increase coverage of the retail sector in GST collection and increasing tax audits and resulting tax assessments.
- Passage of legislation limiting administrative tax exemptions and concessions to be temporary and applicable only in exceptional circumstances.

### Accelerating tax administration reforms and compliance measures
- Prior action: policy directive requiring all government suppliers to be on the current list of active taxpayers to conduct business with government departments.
- Integration of the National Tax Number (NTN) system with the Computerized National Identity Card (CNIC) database (SB, end-September 2015) — all financial and property transactions by individuals require CNIC numbers.
- FBR in process of adopting a risk-based audit policy (with elements of random selection) to identify likely noncompliant taxpayers (SB, end-September 2015).
- By end-January 2016, government will prepare and submit to the National Assembly draft legislation against “benami” transactions (proposed new SB).
- Additional measures: development of a taxpayer compliance risk management system; stepped-up efforts to access taxpayer financial information from multiple sources; strengthening the integrity management unit (MEFP ¶17).

### Targeted income support (BISP)
- BISP reached goal of supporting five million beneficiary households by end-June 2015.
- Current fiscal year plan: expand beneficiaries to 5.3 million (out of 5.7 million target for the medium-term).
- Authorities agreed to protect the real purchasing power of cash transfers with additional support from development partners (TMU ¶23).
- Rolled out education-conditional cash transfers covering 32 districts at end-June 2015.

### Fiscal federalism and provincial revenues
- Seventh NFC award grants 57.5 percent of most revenues to the provinces, with devolution of spending responsibilities and administration of the GST in services in addition to existing taxation authority in agriculture and property.
- Federal government will seek agreement in the new NFC negotiations to balance devolution of revenue and expenditure responsibilities in a way that supports macroeconomic stability.
- Authorities to encourage provinces to improve provincial revenue collection for priority spending in health and education (MEFP ¶19).

### Strengthening fiscal rules, public investment management, and PPPs
- Existing FRDL Act requires a balanced current budget and a debt-to-GDP ratio below 60 percent; numerical targets have not provided effective guidance.
- Staff agreed to support efforts to strengthen legislation: operational and procedural aspects, an appropriate fiscal rule for countercyclical policy, medium-term orientation of the budget process, and policy coordination across all layers of government.
- Government seeking IMF technical assistance to develop a public-private partnership (PPP) framework at the federal level.

### Debt management and financing strategy
- Efforts to build funding buffers, assess off-budget fiscal risks, diversify financing from domestic and external sources, lengthen domestic debt maturity, and improve domestic-external debt balance.
- Improve effectiveness of the Debt Policy Coordination Office (DPCO) and integrate it in Ministry of Finance core functions; build staffing capacity for implementation of an optimal borrowing strategy.
- On track to appoint risk management staff (director and two staff).
- Begin publishing quarterly debt management risk reports covering all government liabilities including guarantees by end-October 2015 (SB).
- Publish an updated MTDS by end-January 2016.

### Monetary and exchange rate policies
- SBP spot purchases of foreign exchange netted some US$3.9 billion in FY2014/15.
- Drew on SBP’s currency swap line with China by $500 million in the last quarter.
- Reserve coverage increased to above three months of imports by end-June 2015.
- Efforts continuing into FY2015/16 first quarter; end-September NIR target within reach.
- Further accumulation of reserves desirable; reserves still significantly below adequacy norms.

### Interest rate corridor and monetary stance
- New interest rate corridor implemented in May 2015 (ahead of end-September 2015 deadline).
- Corridor parameters:
  - Reverse repo rate (ceiling): 6.5 percent.
  - Repo rate (floor): 4.5 percent.
  - New policy rate (target for short-term money-market rates): 6 percent.
- Corridor expected to: provide stronger guidance for short-term market rates, improve liquidity management, increase interbank activity, and reduce banks’ use of SBP standing facilities.
- Core inflation 4.4 percent y-o-y in August 2015.
- Staff supported a moderate increase in the end-September NDA target to allow for adequate reserve money and private sector credit growth, consistent with projected inflation.

### Strengthening SBP independence and governance
- Revised amendments to the SBP Act submitted to the National Assembly in mid-March; amendments establish an independent decision-making monetary policy committee.
- Amendments approved by the National Assembly in August 2015 and expected to be enacted by end-September 2015 (SB), following Senate approval.
- Plan to address remaining recommendations of the 2013 Safeguards Assessment report by June 2016.
- SBP published strategic plan for 2016-20 in August 2015 with steps toward inflation targeting, strengthened research, increased transparency, and enhancements to financial stability, banking system, financial inclusion, payments system, and organizational efficiency.

### Financial sector policies and stability
- Following recapitalization through a rights issue in July 2015, all banks became CAR-compliant (MEFP ¶25).
- Five small banks remain below the minimum requirement for paid-up capital (MCR) but CAR-compliant; plan to raise equity by end-2015 or privatize affected public banks by June 2016.
- Nonperforming loans in the banking system: 12.4 percent in June 2015.
- Authorities improving mortgage foreclosure and corporate restructuring legislation to improve recovery (MEFP ¶26).
- Deposit Protection Fund (DPF) Act finalized; on track for enactment by end-February 2016 (modified SB).
- Corporate infrastructure of the DPF expected to become operational by March 2016 (MEFP ¶28).
- SBP strengthening supervision of financial conglomerates, contingency planning for systematically important banks, pursuing Futures Trading Bill and stronger SECP regulatory powers, and phased implementation of Basel III capital and liquidity standards (MEFP ¶26–27).

### AML/CFT and tax-crime measures
- Draft amendments to the AML Act to include serious tax crimes in the Schedule of Offenses and enable use of AML tools to combat tax crimes discussed in the National Assembly; enactment expected by end-November 2015 (modified SB).
- Once amendments adopted, need to upgrade regulatory framework to mitigate ML/FT risks, including proceeds of corruption and tax crimes.
- Staff encouraged Financial Monitoring Unit access to asset declarations of public officials and guidelines to banks on reporting suspicious transactions related to tax evasion.
- Authorities urged to continue strengthening CFT framework, including implementation of relevant UNSCRs to freeze terrorist assets.

### Structural issues — Energy sector
- Implementing agreed power surcharges, including to service the debt in the power holding company: 335 billion at end-June 2015.
- Allocating 0.1 percent of GDP from FY 2015/16 budget to reduce part of the circular debt.
- Missed end-June 2015 indicative target on the flow of power sector arrears by PRs 15 billion (0.05 percent of GDP) due to temporary delays; September target remains achievable after recoveries.
- Staff emphasized aligning DISCO business plans (loss reduction and collections) with the arrears reduction plan.
- Authorities proposed a new SB to set quarterly loss-reduction, collection, and recovery targets for each DISCO by mid-October 2015 (MEFP ¶34).
- Need for alternative plans in case of negative legal outcomes to electricity surcharges; authorities committed to adjust tariffs as needed and finalize multi-year tariff framework by end-November 2015 (SB).
- CPEC-related planned additions expected to add around 16GW of generating capacity in the next four years to close the supply/demand gap.
- Weighted average gas prices increased by around 14 percent in August 2015 (prior action, MEFP ¶39–40).
- LNG imports reached 200 mmcfd; authorities fully passing through cost of imported LNG to end-user purchase price.
- More than two thirds of conversion of existing domestic gas concessions to higher producer prices (under the 2012 Policy) finalized; remaining eligible ones to be completed by end-September 2015.
- Planning to award contracts for an additional 10–15 exploration fields by end-December 2015 to increase supply.

*Source: IMF staff report (content unit: _cr15278 - 9.      The authorities will deal with the backlog on GST refund claims at a faster pace and modernize the GST regime).*

### 27.      Privatization and restructuring programs continue despite some setbacks (MEFP ¶45).

### _cr15278 - 27.      Privatization and restructuring programs continue despite some setbacks (MEFP ¶45).

### Privatization progress and setbacks
- Privatization and restructuring efforts aim to prevent potential fiscal risks from public companies including power sector firms (to help reduce power sector arrears).
- The planned sale of Heavy Electrical Complex (HEC) in May 2015 had to be cancelled as the winning bidder could not provide the funds to close the transaction.
- National Power Construction Co. (NPCC) bidding was finalized in August raising US$25 million in revenues (the transaction is expected to be completed in September 2015).
- Authorities are moving forward with the privatization of power companies in line with the energy arrears reduction plan and propose a benchmark on completing the bidding process for Faisalabad Electricity Supply Company by end-June 2016 (new SB).
- The notification was due in 2014.

### Timeline of completed and projected privatizations (PSEs)
- 1 United Bank Limited (UBL) — Sale of 19.6 percent of company shares — June 2014
- 2 Pakistan Petroleum Limited (PPL) — Sale of 5 percent of company shares — June 2014
- 3 Allied Bank Limited (ABL) — Sale of 10 percent of GoP shares — December 2014
- 4 Habib Bank Limited (HBL) — Sale of 42 percent of GoP shares — April 2015
- 5 National Power Construction Corp. (NPCC) — 88 percent sell-out of strategic asset — End-September 2015
- 6 Pakistan Steel Mills (PSM) — Strategic & Asset Sale — End-March 2016
- 7 State Life Insurance Corp (SILC) — Sale of 10-15 percent company shares — End-March 2016
- 8 Kot Addu Power Company (KAPCO) — Sale of 40.25 percent of GoP shares — End-June 2016
- 9 Pakistan International Airlines (PIA) — Sale of 26 percent of GoP shares — End-June 2016
- 10 Mari Petroleum Ltd — Sale of 18.39 percent of GoP shares — End-June 2016
- 11 Pak Arab Refinery Ltd (PARCO) — Sale of 10-15 percent company shares — End-June 2016
- 12 Faisalbad Electric Supply Company (FESCO) — Strategic & Asset Sale — End-September 2016
- 13 Northern Power Generation Company Limited (NPGCL) — Strategic & Asset Sale — End-September 2016
- 14 Islamabad Electric Supply Company (IESCO) — Strategic & Asset Sale — end-September 2016
- 15 Lahore Electric Supply Company (LESCO) — Strategic & Asset Sale — end-September 2016
- 16 Jamshoro Power Generation Company Limited (JPGCL) — Strategic & Asset Sale — End-December 2016

### Due diligence and enterprise-specific developments
- Staff urged authorities to accelerate restructuring or privatization of key loss-making firms to mitigate fiscal risks and improve governance.
- The due diligence process for Pakistan International Airlines (PIA) was completed in August 2015 with a two-month delay (MEFP ¶45). Plans for private participation will be developed thereafter and expressions of interest for strategic investors will be solicited before end-December 2015 (modified SB).
- Operational efficiency of Pakistan Steel Mills deteriorated and capacity utilization declined; due diligence was completed in August 2015 and the company is expected to be privatized by end-March 2016.
- Pakistan Railways focused on improving freight operations and more than doubled revenues from these operations in FY2014/15.

### Program financing, risks, and reserves
- Pakistan’s program financing needs (estimated at US$6.2 billion or 2.2 percent of GDP) are fully covered for the current fiscal year (the remainder of the program).
- Disbursements from multilateral and bilateral partners (including about US$2 billion from the World Bank and the ADB) are expected to help cover financing needs.
- Pakistan has access to international markets, which reduces financing risks going forward.
- Reserves situation has continued to improve to cover more than three months of imports, but coverage remains below adequacy norms such as the ARA metric.
- The Fund’s exposure to Pakistan increased with the disbursement made upon approval of the seventh review, reaching SDR 2.9 billion (about US$4.1 billion and 6.2 percent of total external debt) by end-June 2015.
- Pakistan has the capacity to repay the Fund, but materialization of risks to the economic outlook could erode it, particularly if the Fund’s exposure increases further with new EFF program disbursements.

### Staff appraisal — macro outlook and key recommendations
- Economic outcomes and outlook:
  - Real GDP growth is expected to increase to around 4.5 percent this fiscal year.
  - Headline inflation is below 2 percent.
  - Economic growth remains below the 5–7 percent range needed to absorb new entrants into the labor market and achieve broad living-standard improvements.
- Fiscal policy recommendations:
  - Authorities should be prepared to take measures as necessary to keep the fiscal program on track.
  - Strengthen tax revenue mobilization and contain current expenditures as needed.
  - Strengthen coordination mechanism with the provinces.
  - If a fiscal gap emerges at the time of the ninth review, planned tax base broadening measures should be pulled forward and implemented promptly.
  - Continue efforts to restrict the legal authority for granting administrative tax exemptions and deepen revenue administration reforms to improve compliance and enforcement.
- Fiscal framework and governance:
  - Strengthen the FRDL to provide room for countercyclical fiscal policy and anchor debt sustainability.
  - Improve transparency, management of fiscal risks associated with off-budget operations, and debt management.
  - Better balance devolution of revenue and expenditure responsibilities between federal government and provinces.
  - Continue efforts to increase social protection through the BISP.
- Monetary policy and reserves:
  - Continue and ambitiously accumulate international reserves in the context of the fallen oil bill.
  - Implementation of the new interest rate corridor is a major step to improve monetary policy framework.
  - Amendments to the SBP Act, once enacted, will be important to strengthen SBP autonomy; further progress needed on remaining recommendations of the 2013 Safeguards Assessment report by June 2016.
- Financial sector reforms:
  - Progress with bank capitalization is welcome; priority to bring a number of small banks into compliance with statutory requirements.
  - Improve foreclosure and corporate restructuring legislation to address nonperforming loans.
  - Continue efforts on Deposit Protection Fund, Futures Trading Bill, and Securities Act.
  - Enact draft amendments to the AML Act despite recent delays and continue to strengthen the CFT framework, including implementation of relevant UNSCRs.
- Power sector reforms:
  - Swift implementation of power sector reforms is critical to secure reliable supply, improve system efficiency, and move the sector to cost recovery.
  - Authorities’ resolve to step up implementation of the power sector arrears reduction plan is welcomed; swift implementation will unlock idle generation capacity and reduce potential fiscal drains from arrears.
  - Ongoing legal challenges to electricity surcharges pose potential budget risks; authorities’ contingency plans, including commitment to raise tariffs if needed, mitigate these risks.
- Structural reform momentum:
  - Following delays in planned privatization of public sector enterprises, follow-through on revised privatization plans and commitment to restructure key loss-making enterprises will be essential.
  - Continue reforms in the gas sector with emphasis on price rationalization and improvements in domestic production.
  - Business climate reforms are advancing; future efforts should focus on legislative and administrative changes that expedite business climate improvements.

*Source: IMF staff report content provided in the supplied document excerpt.*

### 41.      On the basis of Pakistan’s performance under the extended arrangement and the

### _cr15278 - 41.      On the basis of Pakistan’s performance under the extended arrangement and the

### Staff recommendation and program actions
- Staff supports the authorities’ request for:
  - Completion of the eighth review under the arrangement.
  - Waivers for the nonobservance of the end-June PCs on the budget deficit and government borrowing from the SBP.
  - Modification of the end-September 2015 PC on NDA.
- Staff recommends:
  - Establishment of end-December 2015 PCs.
  - Setting of three new structural benchmarks.
  - Revision to the timeline of structural benchmarks as proposed in the attached MEFP.

### Selected economic indicators (2008–15)
- Quantum Index of Large Scale Manufacturing: plotted July 2008–May 2015 (In y-o-y percent change).
- Real and Nominal Effective Exchange Rate: Indices, 2010 = 100 (July 2008–June 2015).
- Credit to Government and Private Sector: July 2009–July 2015 (In y-o-y percent change).
- Gross Official Reserves and Exchange Rate: Reserves (billions of U.S. dollars; RHS), Interbank exchange rate (Pakistani rupees/U.S. dollars) (July 2008–July 2015).
- SBP Net Foreign Assets and Net Swap/Forward Position: July 2009–June 2015 (In billions of U.S. dollars).

### Selected financial indicators (2008–15)
- Emerging Market Bond Index Global: July 2008–July 2015 (Weighted average spread).
- Open Market Operations (OMOs): Outstanding net OMOs (millions of Pakistani rupees), July 2008–July 2015.
- Interest rates (July 2008–June 2015): Lending rate; Policy rate; KIBOR (3-month); Treasury bills (3-month); Deposit rate.
- Karachi Stock Exchange (KSE) Market Index and Volume: July 2008–July 2015 (Volume in millions of shares; RHS).
- SBP Interest Rate Corridor and Treasury Bill Auctions Maturity Profile: July 2008–July 2015.

### Banking and financial sector indicators
- Trend in Real GDP Growth and Non-performing Loans (NPLs): 2003–2015 Est. (NPL to loan ratio and Real GDP growth).
- Peer comparison: Private credit (% of GDP) vs GDP per capita (US$).
- Credit to the Private Sector and Economic Activity: Real private sector credit growth (y-o-y percent change) and Real GDP growth (2003–2015 Est).
- Stock Market Index: Pakistan and selected emerging market economies (January 3, 2011 = 100).
- Bank deposits and nominal GDP growth: 2003–2015 Est.

### Quantitative Performance Criteria and Indicative Targets (Table 1) — selected figures (stock/flows)
- Floor on net international reserves of the SBP (millions of U.S. dollars): 4,290; 7,300; 4,913; 5,354; 8,300; 8,300; 9,300; 9,400; 10,000.
- Ceiling on net domestic assets of the SBP (stock, billions of Pakistani rupees): 2,372; 2,270; 2,459; 2,440; 2,210; 2,350; 2,350; 2,560; 2,650.
- Ceiling on overall budget deficit (cumulative, excluding grants, billions of Pakistani rupees): 1,067; 1,387; 1,386; 1,488; 306; 306; 625; 1,012; 1,292.
- Ceiling on SBP's stock of net foreign currency swaps/forward position (millions of U.S. dollars): 1,765; 1,700; 1,700; 1,700; 1,700; 1,700; 1,650; 1,650; 1,650.
- Ceiling on net government budgetary borrowing from the SBP (stock, billions of Pakistani rupees): 1,653; 1,865; 1,865; 1,893; 1,800; 1,800; 1,800; 1,800; 1,800.
- Cumulative floor on Targeted Cash Transfers Spending (BISP) (billions of Pakistani rupees): 69; 95; 95; 94; 21; 23; 46; 70; 95.
- Floor on net tax revenues collected by the FBR (cumulative, billions of Pakistani rupees): 1,777; 2,691; 2,691; 2,588; 640; 640; 1,390; 2,105?3104 (note: values printed as contiguous digits in source).
- Ceiling on power sector payment arrears (flow, billions of Pakistani rupees): n/a; 42; 42; 57; 36; 36; 27; 22; 29.

### Program modalities and structural benchmarks (Table 2) — selected items and deadlines
- Prior Actions / Monetary sector:
  - Require all government suppliers to be on the current list of active income and GST taxpayers to conduct business with government departments. (Original)
  - Notify and implement the new gas tariff in line with the OGRA determination. (end-August 2015) — Rationale: To prevent potential fiscal costs and gradually align gas prices to international prices.
  - Bring net borrowing from the SBP to below PRs 1830 billion (end-August 2015) — Rationale: To make sure that end-September PC is within reach.
- Structural Benchmarks (Fiscal sector):
  - Draft legislation that will permanently prohibit the practice of issuing SROs that grants exemptions and loopholes. (end-March 2015) — Status: Met.
  - Reorganize the Debt Policy Coordination Office as a middle office... (end-March 2015) — Status: Met.
  - Merge the NTN system covering 3.6 million individuals with the CNIC database that covers about 150 million people. (end-September 2015) — Rationale: Broaden the tax base and improve tax compliance.
  - The FBR will adopt a new audit policy that will move towards risk-based auditing... (end-September 2015).
  - Appoint risk management staff (director and two staff) and begin publishing quarterly debt management risk reports... (end-October 2015).
- Structural/Financial sector (selected):
  - Announce a time-bound plan to improve the SBP's interest rate corridor by setting the policy rate between the floor and ceiling rates of the corridor. (end-February 2015) — Status: Met.
  - Improve SBP internal operations: Investment Committee oversight and Internal Audit Department reviews within two months after each quarter. (end-February 2015) — Status: Met.
  - Enact amendments to the SBP law to give SBP autonomy in its pursuit of price stability as its primary objective. (end-September 2015).
  - Make the improved interest rate corridor of the SBP operational. (end-September 2015) — Status: Met.
  - Enact the Securities Bill, in line with Fund staff advice. (end-January 2016) — Status: Met in May, 2015.
  - Enact the Deposit Protection Fund Act, in line with Fund staff advice. (end-December 2015; rescheduled end-February 2016).
  - Enact the Credit Bureau Act (end-November 2015) — Status: Met in August, 2015.
  - Adopt amendments to the AMLA to include serious tax crimes and definition of politically exposed persons. (end-September 2015; rescheduled end-November 2015).
  - Conduct a review to reduce number of existing processes and forms for paying sales and income taxes. (end-March 2015) — Status: Met.
  - Solicit expressions of interest for strategic private sector participation for the 26 percent of PIA's shares. (end-December 2015) — Status: Modified.
  - Determine and notify multi-year tariffs for FESCO, IESCO, and LESCO (end-November 2015).
  - Prepare and submit draft legislation against “benami” transactions (end-January 2016).
  - Enforce DISCO performance through quarterly loss-reduction, collection, and recovery targets (October 15, 2015).
  - Complete bidding process for shares of FESCO (end-June 2016).

### Macroeconomic framework and projections (Tables 3–4) — key projections and historical snapshots
- Population: 189.9 million (2014/15).
- Per capita GDP: US$1,510 (2014/15).
- Poverty rate: 12.7 percent (2010/11).
- Unemployment: 6.0 percent (2013/14).
- Main exports: Textiles ($13.6 billion, 2013/14).
- Real GDP at factor cost (selected years): 3.6; 3.8; 3.7; 4.0; 4.2; 4.5; 4.5 (2010/11–2016/17 onward as table shows).
- Consumer prices (period average): 13.7; 11.0; 7.4; 8.6; 4.5; 4.7; 4.7; 5.5; 5.0; 5.0; 5.0 (2010/11–2019/20).
- Gross reserves (in millions of U.S. dollars, selected): 14,784; 10,799; 6,008; 9,096; 13,534; 17,018; 17,131 (historical and projection columns).
- Gross national saving: 14.2; 13.0; 13.9; 13.7; 14.3; 15.2; 14.8; 15.0; 15.3; 15.6; 16.1 (2010/11–2019/20).
- Overall fiscal balance (including grants) (percent of GDP): -6.7; -8.8; -8.3; -4.9; -5.3; -3.9; -4.2; -3.3; -2.9; -2.7; -2.4 (2010/11–2019/20).
- Total public debt (including obligations to the IMF) (percent of GDP): 59.5; 64.0; 64.8; 64.9; 64.7; 64.0; 64.4; 62.8; 61.2; 60.4; 59.2 (2010/11–2019/20).

### Balance of payments and external sector (Table 5) — selected flows and stocks
- Current account (2014/15 end-year): -1,488 (millions of U.S. dollars).
- Exports, f.o.b. (2014/15 end-year): 24,300 (millions of U.S. dollars).
- Imports, f.o.b. (2014/15 end-year): 41,179 (millions of U.S. dollars).
- Current transfers: credit (2014/15 end-year): 23,423 (millions of U.S. dollars).
- Workers' remittances (2014/15 end-year): 19,750 (millions of U.S. dollars).
- Gross external financing needs (mem. item): 8,713; 6,867; 6,312; 6,176; 5,722; 6,058; 8,975; 9,567 (selected years, Table 5).
- End-period gross official reserves (millions of U.S. dollars, mem. item): 9,096; 13,534; 13,917; 15,574; n.a.; n.a.; 17,018; 17,131; 19,462; 19,645; 17,711; 17,351 (2013/14–2019/20 columns).

### Fiscal aggregates and budgetary developments (Tables 6a–6c) — selected aggregates
- Revenue and grants (selected): 1,878; 2,130; 2,306; 2,611; 3,011; 3,836; 3,984; 4,740; 4,652 (years shown).
- Tax revenue (selected): 1,331; 1,500; 1,738; 2,076; 2,231; 2,640; 3,024; 3,674; 3,664.
- Interest (selected): 638; 642; 698; 889; 991; 1,148; 1,304; 1,282; 1,297.
- Overall Balance (excluding grants) (selected, in billions PRs): -693; -944; -1,276; -1,775; -1,903; -1,427; -1,488; -1,292; -1,293.
- Nominal GDP (market prices, selected): 13,200; 14,867; 18,276; 20,047; 22,379; 25,068; 27,384; 30,215; 30,170.

### Monetary survey (Table 7) — selected monetary aggregates and flows
- Net foreign assets (NFA) (end-quarter snapshots, in billions PRs): 601; 570; 649; 735; 819; 813; 936; 879; 997.
- Net domestic assets (NDA) (same quarters): 9,367; 9,392; 9,762; 9,801; 10,464; 10,365; 10,745; 10,953; 11,686.
- Broad money (levels): 9,968; 9,962; 10,411; 10,536; 11,284; 11,177; 11,681; 11,832; 12,683.
- Reserve money (levels): 2,861; 2,791; 2,781; 3,000; 3,143; 3,015; 3,023; 3,279; 3,458.
- Private credit (percent change, mem.): 11.0; 13.0; 7.4; 6.5; 5.6; 8.0; 8.9; 9.4; 9.8.
- Budget bank financing (change from the beginning of the fiscal year; in Rs billions), of which: 324; 140; 199; 469; 888; 186; 379; 614; 783.

### Financial soundness indicators (Table 8) — banking system (Dec 2012–Jun 2015)
- Regulatory capital to risk-weighted assets: 15.4; 15.1; 15.5; 15.5; 15.1; 14.8; 15.5; 15.5; 17.1; 17.4; 17.2 (period sequence).
- Nonperforming loans (NPLs) to gross loans: 14.5; 14.7; 14.8; 14.3; 13.0; 13.4; 12.8; 13.0; 12.3; 12.8; 12.4.
- Provisions to NPLs: 71.8; 71.9; 73.2; 76.5; 78.4; 77.8; 79.5; 77.6; 79.8; 80.2; 80.8.
- Return on assets (after tax): 1.4; 1.2; 1.1; 1.1; 1.1; 1.3; 1.4; 1.4; 1.5; 1.7; 1.6.
- Liquid assets to total assets: 47.4; 47.4; 47.4; 49.0; 46.7; 47.3; 48.3; 47.8; 54.8; 49.2; 52.3.
- Loans/Deposits: 51.5; 51.6; 48.1; 48.7; 48.6; 49.2; 47.7; 48.7; 48.2; 46.9; 45.7.

### Indicators of Fund credit and Fund-related schedules (Tables 9 and 11)
- Projected total Fund credit (SDR, selected): Total: 2,296.8; 2,463.0; 3,600.0; 4,393.0; 4,393.0; 4,243.0; 3,823.0; 3,163.0 (2013–2020 columns).
- Extended Fund Facility component: 720.0; 2,160.0; 3,600.0; 4,393.0; 4,393.0; 4,243.0; 3,823.0; 3,163.0.
- Total (SDR) outstanding and charges (mem.): Total 49.1; 63.5; 72.2; 222.2; 494.5; 715.4 (selected rows).
- Gross official reserves (millions of U.S. dollars) (mem): 3,478; 10,514; 15,574; 18,064; 18,563; 18,901; 18,527; 17,711 (projection row).
- Schedule of reviews and purchases (selected):
  - September 4, 2013: 360.35 (Millions of SDRs) — Approval of arrangement.
  - December 2, 2013: 360.35 — First review and end-September 2013 performance/continuous criteria.
  - March 2, 2014: 360.35 — Second review and end-December 2013 performance /continuous criteria.
  - June 2, 2014: 360.35 — Third review and end-March 2014 performance /continuous criteria.
  - September 2, 2014: 400 — Fourth review and end-June 2014 performance /continuous criteria.
  - December 2, 2014: 720 — Fourth and Fifth reviews and end-June and end-September 2014 performance /continuous criteria.
  - March 2, 2015: 360.35 — Sixth review and end-December 2014 performance /continuous criteria.
  - June 2, 2015: 360.35 — Seventh review and end-March 2015 performance /continuous criteria.
  - September 2, 2015: 360.35 — Eighth review and end-June 2015 performance /continuous criteria.
  - December 2, 2015: 360.35 — Ninth review and end-September 2015 performance/continuous criteria.
  - March 2, 2016: 360.35 — Tenth review and end-December 2015 performance /continuous criteria.
  - June 2, 2016: 360.35 — Eleventh review and end-March 2016 performance /continuous criteria.
  - August 1, 2016: 73.7 — Twelfth review and end-June 2016 performance /continuous criteria.
  - Total: 4,393.425 (Millions of SDRs).

*Source: IMF staff and Pakistani authorities as presented in the provided content.*

### Appendix I. Letter of Intent

### Appendix I. Letter of Intent

### Program status and eighth review assessment
- Reaching the eighth review under the three-year economic reform program; significant progress made in reducing the budget deficit and rebuilding foreign exchange buffers.
- Rationalized untargeted energy subsidies and significantly expanded coverage under the Benazir Income Support Program (BISP).
- Performance on the eighth review: broadly satisfactory despite some slippages.
  - End-June 2015 quantitative performance criteria (PCs) on the SBP’s net international reserves, net domestic assets (NDA), and foreign currency swap/forward position were met.
  - PCs on the fiscal deficit and government borrowing from the SBP were missed.
  - Indicative targets on tax revenue and power sector payment arrears were missed.
  - Indicative target on social spending under BISP missed by a very small margin due to savings in administrative costs; target for number of beneficiaries was achieved (expanded BISP coverage to 5 million beneficiaries).
  - Structural benchmark on making the improved interest rate corridor of the SBP operational was met in advance of end-September.
- Requests waivers of nonobservance for the missed performance criteria based on corrective actions described in the attached MEFP.
- Program monitoring to continue through prior actions, quantitative PCs, indicative targets, and structural benchmarks; new structural benchmarks proposed in the attached MEFP (Tables 1 and 2). TMU explains measurement of program targets.
- Proposal to modify the end-September PC on NDA and set new PCs for December 2015 as specified in the attached MEFP, and completion of the eighth review under the Extended Arrangement.

### Recent economic developments and outlook
- Growth and inflation
  - Real GDP growth expected, for program purposes, to reach about 4.5 percent in FY 2015/16; government retains goal of 5.5 percent in the fiscal year.
  - Headline consumer price inflation fell to 1.7 percent y-o-y in August; expected to increase to around 4¾ percent on average in FY2015/16.
- External sector and reserves
  - Current account deficit narrowed to 0.8 percent of GDP in FY 2014/15.
  - Gross international reserves reached US$13.5 billion by end-June 2015; up from US$11.6 billion at end-March 2015; covering more than three months of imports.
  - Expectation to improve foreign reserve coverage to about four months of imports by end-FY2015/16.
  - Export decline driven by lower commodity prices, weakening external demand, energy shortages, security and business climate challenges, and significant appreciation of the real effective exchange rate; decline offset by low oil prices and strong remittances.
- Fiscal and monetary aggregates
  - General government budget deficit excluding grants missed by PRs 102 billion (0.37 percent of GDP) in FY2014/15, largely due to higher year-end provincial spending.
  - Unforeseen expenditures of PRs 53 billion (Zarb-e-Azb operations, TDPs, flood relief/rehabilitation) affected fiscal outturns.
  - Tax-to-GDP ratio increased by 0.5 percentage point to 11 percent in FY2014/15.
  - End-June NIR target met with a margin of over US$440 million.
  - End-June NDA target met by PRs 19 billion, despite net government borrowing from SBP exceeding target by PRs 28 billion.
  - Reserve money grew by 9.9 percent y-o-y in June 2015; broad money grew by 13.2 percent y-o-y in June 2015.
  - Private sector credit growth slowed to 5.6 percent y-o-y in June 2015; government borrowing from the banking system increased by 16 percent y-o-y.
  - Ceiling on SBP’s net short position of swap/forward contracts met.

### A. Monetary and exchange rate policies
- Objectives
  - Further boost external buffers, maintain price stability, strengthen SBP independence, and improve effectiveness of monetary policy tools.
- Reserve accumulation
  - Continue to build foreign exchange reserve buffers by taking full advantage of the oil price windfall while recognizing need to strengthen trade competitiveness.
  - Request modification of end-September PC on SBP NDA and propose subsequent PCs accordingly (Table 1).
- Policy stance and interest rate corridor
  - Reverse repo rate lowered by cumulative 350 bps since November 2014 to maintain a forward-looking stance that keeps the real interest rate positive and anchors low inflation expectations.
  - New interest rate corridor put in place in May 2015 (ahead of end-September SB): policy rate 6 percent, ceiling 6.5 percent, floor 4.5 percent; transition supported by more frequent open market operations.
  - Improved corridor enhances guidance for short-term market rates, liquidity management, increased interbank activity, and reduced use of SBP standing facilities.
- SBP independence and internal operations
  - Revised amendments to the SBP Act submitted in mid-March to parliamentary committee to strengthen autonomy and establish an independent monetary policy committee; amendments approved by the National Assembly in August and expected to be enacted by end-September 2015 (SB), following Senate approval.
  - Working with IMF staff to address remaining recommendations of the 2013 Safeguards Assessment by June 2016.
  - SBP prepared a strategic plan for 2016–20 to review organizational set-up, increase efficiency, improve coordination, remove overlapping functions, and undertake initiatives to improve Bank operations; plan published on August 14, 2015.

### B. Fiscal policy
- Fiscal consolidation goals
  - Committed to lowering the budget deficit to 3½ percent by end of the program in FY 2016/17 mainly through revenue mobilization across all levels of government.
  - Aim to create fiscal space for infrastructure, education, healthcare, and targeted social assistance.
- FY2015/16 stance and readiness to adjust
  - Stand ready to take additional revenue measures to attain budget deficit target of 4.3 percent of GDP (excluding grants) in FY2015/16 (including an adjustor of 0.3 percent of GDP for critical one-off spending).
  - Prepared to bring forward plans to eliminate SROs slated for 2016–17 if needed.
- Expenditure management and provincial commitments
  - Reduce power subsidies (including amounts for arrears clearance) to 0.4 percent of GDP in FY2015/16, from 0.8 percent in FY2014/15.
  - Reallocate current spending to accommodate additional agricultural support.
  - Mitigating measures to protect against legal challenges to electricity surcharges (¶31 in MEFP).
  - Provincial finance secretaries agreed in writing to increase provincial budget surpluses consistent with the program: total provincial spending to be maintained at 6.5 percent of GDP in FY2015/16, with total provincial own tax and nontax revenues at 1.1 percent of GDP.
  - Monthly meetings among federal and provincial Finance Secretaries to review fiscal performance and coordinate spending; federal government to again reduce expenditure allocations in the first nine months compared to the budget to create a reserve against deviation.
- Tax policy and revenue mobilization
  - Objective to raise tax-to-GDP ratio to 14.5 percent by FY2019/20 through broadening the tax base, strengthening tax administration, and shifting composition toward direct taxes.
  - Past two years’ tax reforms included elimination of tax exemptions/concessions amounting to PRs 224 billion, introduction of differential taxation, reengineering and automating tax administration, tariff liberalization, and measures to change taxpayer behavior.
  - Parliament approved legislation permanently removing the government’s authority to grant tax concessions or exemptions; concessions now in purview of parliament except in specified exceptional circumstances where ECC can grant temporary concessions.
- GST and refund claims
  - Committed to modernizing the GST regime and accelerating resolution of GST refund claims before FY2016/17 budget presentation.
  - Reduced outstanding GST refund claims by over 75 percent by end-FY2014/15; increased GST refund payments by 35 percent over the previous year; domestic GST collection increased by 6.2 percent.
  - Stock of unpaid GST refund claims declined from PRs 113.2 billion in November 2014 to below PRs 95 billion at end-June 2015.
  - FBR to implement a comprehensive plan including automated pre-verification and fast-track processing to bring stock of GST refund claims to a level consistent with no more than a three-month flow of claims (estimated at PRs 20 billion).
- Tax administration reforms and enforcement
  - Issued 200,000 first notices by end-June 2015 to broaden taxpayer base; number of income tax filers rose from 722,000 on July 1, 2013 to 912,000 as of August 4, 2015.
  - Retail trade initiative: Tier 2 small retailers charged GST via monthly electricity bills; Tier 1 large retailers registered under GST. Out of 15,000 large retailers identified, 6,000 registered in FY2014/15.
  - Continue to strengthen enforcement, avoid amnesty schemes, and pursue nonfilers, large corporations, and high wealth individuals.
  - Specific measures and deadlines:
    - Integrate the National Tax Number (NTN) system with the Computerized National Identity Card (CNIC) database (SB, end-September 2015).
    - Adopt a new risk-based audit policy and develop a modern compliance risk management system with quantitative performance indicators (SB, end-September 2015).
    - Income tax law amended to provide FBR full access to bank accounts and transactions; operationalization delayed by legal challenges; FBR strengthening intelligence capacity using multiple information sources.
    - Prepare and submit draft legislation against “benami” transactions to the National Assembly by end-January 2016 (new SB).
    - Require all government suppliers to be on the current list of active income and GST taxpayers to conduct business with government departments (prior action); FBR to start monitoring penalties imposed by field officers.
    - Streamline the online filing scheme to simplify PIT returns and maintain tax audit coverage.

*Appendix I. Letter of Intent — September 15, 2015*

### 7.5 percent of filed tax returns.

### _cr15278 - 7.5 percent of filed tax returns.

### Tax administration and integrity
- Establish a tax policy research and analysis unit under the Revenue Division to improve analytical capacity for fiscal policymaking.
- Integrity measures in the Federal Board of Revenue (FBR):
  - Established an integrity management unit in the FBR and collected asset declarations of all FBR employees.
  - Strengthen the integrity management unit by identifying potential processes within the FBR, including in the Directorate General of Internal Audit, by end-November 2015.
  - Simplify tax laws and procedures and work with provinces to consolidate collection of provincial taxes and fees to reduce opportunities for corruption and limit discretion of tax officials.
  - Expand IRIS (an end-to-end integrated IT system) to all business areas throughout the FBR’s network of offices to further reduce discretion in tax administration.
  - Following ratification of the whistleblower law for tax crimes, establish communication platforms (phone hotline and website) to facilitate public reporting of corrupt practices in tax administration; publish aggregate results on a quarterly basis, starting in January 2016.

### Fiscal framework, FRDL Act, and contingent liabilities
- Seek Fund advice to strengthen the Fiscal Responsibility and Debt Limitation (FRDL) Act to:
  - Define an appropriate fiscal policy anchor.
  - Strengthen medium-term orientation of the budget process.
  - Improve policy coordination across all layers of government.
- Improve policies and procedures for government guarantees and risk management, noting the size of government guarantees was about 2.3 percent of GDP in FY2014/15.
- Develop procedures to systematically account for fiscal costs and contingent liabilities associated with SOEs, PPPs, and SPVs.
- Seek IMF technical assistance to develop a PPP framework at the federal level.

### Devolution and provincial revenue measures
- Context:
  - The seventh NFC award grants 57.5 percent of most revenues to the provinces, with devolution of spending responsibilities and administration of the GST on services, in addition to taxation authority in agriculture and property.
- Policy aims and measures:
  - Seek an NFC agreement to balance devolution of revenue and expenditure responsibilities to allow for macroeconomic stability.
  - Encourage provinces to improve provincial revenue collection to generate resources for priority spending in health and education.
  - Encourage provinces to modernize agriculture taxation and develop a strategy to identify mis-declarations.
  - Establish a centralized electronic cadastre to better record transactions and assess real estate tax for each property based on periodically updated market valuation.

### Gender-responsive budgeting and inclusive growth
- Enhance the budget preparation process to better incorporate gender equality.
- Reinvigorate gender-disaggregated analysis in consultation with the UNDP.
- Prepare a plan for gender-responsive budgeting to be implemented across all layers of government in FY2016/17.

### Social protection — Benazir Income Support Program (BISP)
- Coverage and targets:
  - As of end-June 2015, reached 5 million beneficiaries.
  - Slightly missed the indicative target for transfer payments due to savings on administrative expenses.
  - Expand beneficiaries to 5.3 million in FY 2015/16.
  - If additional donor support is secured, further increase stipends (as elaborated in the TMU).
- Service delivery and contracts:
  - Signed amendments in contracts with commercial banks working with BISP to improve service delivery and reduce cost.
  - Decision on new contracts expected by September 2015; if hiring new banks is needed, transition plan to be finalized by October, 2015.
  - Extended contracts with commercial banks currently making e-payments on behalf of BISP until December 2015 to ensure timely payments during transition.
  - Rolled out education-conditional cash transfers in partnership with provincial governments; as of end-June 2015, disbursing in 32 districts.

### Fiscal financing and cash management
- Improve fiscal cash management after missing end-June target on government borrowing from the SBP by PRs 28 billion due to delayed foreign inflows and higher end-year provincial spending.
- Remedial actions:
  - Brought net borrowing from the SBP to below PRs 1830 billion at end-August (prior action).

### Debt management and institutional strengthening
- Objectives and context:
  - Reduce rollover risks, fully assess off-budget fiscal risks, diversify financing, lengthen maturity profile of domestic debt, and improve domestic-external debt balance.
  - Interest payments accounted for about 36 percent of total federal expenditure in FY 2014/15 (4.8 percent of GDP).
- Institutional actions:
  - Improve effectiveness and staffing of the Debt Policy Coordination Office (DPCO) and integrate it into the Ministry of Finance’s core functions.
  - Synchronize rate setting between domestic retail and wholesale debt markets.
- Specific commitments:
  - Continue to provide Fund staff with a detailed quarterly financing plan for the coming 12 months and publish a rolling quarterly issuance program for domestic public securities.
  - Update the Medium Term Debt Management Strategy (MTDS) covering FY2015/16–FY2018/19 (prepare a draft by end-November 2015 and publish by end-January 2016).
  - By end-October 2015 (SB), appoint risk management staff (director and two staff) and publish quarterly debt management risk reports covering all government liabilities including guarantees, as defined in the TMU.

### Financial sector soundness and supervision
- Banking sector performance and indicators:
  - Pre-tax profit of the system rose 52 percent y-o-y in June, mainly due to increased net interest income from investments in government securities and higher noninterest income, despite higher provision charges.
  - Capital adequacy ratio (CAR) remained at 17.2 percent, above the 10 percent minimum requirement.
  - As of end-June 2015, nonperforming loans (NPLs) ratio at 12.6 percent, and ratio of net NPLs to net loans at 2.7 percent.
  - SBP finalized a set of encouraged financial soundness indicators with IMF support.
- Capitalization of banks and remediation:
  - Rights issue in the last CAR noncompliant bank in July 2015 addressed capital shortfalls in previously CAR-noncompliant banks.
  - Five small banks, while CAR-compliant, remain below the minimum capital requirement (MCR); time-bound plans to raise equity or privatize them by June 2016.
- Regulatory and supervisory enhancements:
  - Revised SECP Act to enhance regulatory power will be discussed with the IMF and considered by the CCI before submission to Parliament for enactment by April 2016.
  - Futures Trading Bill being finalized and to be placed before Parliament by end-September 2015.
  - SBP-SECP joint task force finalizing guidelines for an early warning system for monitoring financial conglomerates; developing a framework for consolidated supervision of banking groups with IMF TA.
  - Amendments to foreclosure clauses in the Financial Institutions (Recovery of Finances) Ordinance, 2001, developed to improve NPL recovery; draft Corporate Restructuring Companies (CRC) Act submitted to Parliament in April 2015.
  - SECP prepared a concept note for a Corporate Rehabilitation Act shared with stakeholders.
  - SBP improving contingency planning framework with IMF TA, including review of legal framework, gap identification, assessment of consolidated supervision framework and domestic systemically important banks (D-SIBs); initial D-SIB identification assessment conducted and published.
- Basel III transition:
  - CAR requirement will increase to 10.25 percent by December 2015, with further gradual steps toward 12.5 percent by 2019.
  - Developing a strategy for adopting Basel III liquidity rules.
- Deposit insurance:
  - Draft Deposit Protection Fund (DPF) Act finalized in line with best international practices (as specified in the TMU) and expected to be enacted by end-February 2016 (modified SB).
  - SBP initiated preparatory work to establish corporate infrastructure of the DPF and requested IMF TA; DPF to become operational by March 2016.
- AML/CFT framework:
  - Parliament discussing draft amendments to the Anti-Money-Laundering Act (AMLA) to include serious tax crimes in the Schedule of Offenses and enable AML tools to combat tax crimes; committed to adopting these amendments by end-November 2015 (modified SB).
  - Amend applicable regulations subsequently in line with international standards.
  - Enhance Financial Monitoring Unit’s analytical capability by establishing a data center and use of the goAML analytical tool in cooperation with DfID and UNODC.
  - Continue to work with the Asia/Pacific Group (APG) of the FATF to strengthen framework for combating financing of terrorism and implement relevant UN Security Council Resolutions.

### Energy sector reforms — strategy and targets
- Objectives:
  - Implement a time-bound strategy over three–five years to tackle price distortions, insufficient collections, costly and poorly targeted subsidies, governance and regulatory deficiencies, and low efficiency in energy supply and distribution.
- Electricity subsidies and arrears:
  - Reduce electricity subsidies to 0.3 percent of GDP in FY 2015/16, and allocate an additional 0.1 percent for arrears clearance, with recent tariff notification.
  - Begun addressing flow and stock of payable arrears in the power sector, including by allocating budgetary resources, levying surcharges, improving company performance and recoveries, and initiating privatization of power sector companies.

Power Sector — price adjustments and performance
- Price adjustments:
  - Notified the FY2014/15 tariff in June 2015 as determined by NEPRA, and implemented surcharges in line with program targets defined in the TMU.
  - Commit to protecting revenue in the electricity sector by adjusting prices as needed to ensure full recovery of costs from consumers.
  - Finalize technical loss diagnostic studies for all DISCOs so NEPRA can consider better loss rate estimates in its FY2015/16 tariff determination by end-October 2015.
  - Commit to gradually phasing out untargeted subsidies while protecting the most vulnerable consumers.
- Arrears (circular debt) — stocks and components:
  - Payables in the power sector stand at PRs 313 billion at end-June 2015, comprising:
    - a residual from payables clearance of June and July 2013;
    - a disputed amount with Independent Power Producers (IPPs);
    - DISCOs nonrecovery and penalties levied on past nonpayment (as defined in the TMU);
    - transmission and distribution losses not recognized by the regulator;
    - debt from court stay order on surcharges;
    - unpaid amounts of verified subsidy claims of DISCOs under various heads;
    - PHCL loan servicing; and
    - payables to cross border trade.
  - Stock of past arrears, including PHCL, in the syndicated term credit finance (STCF) facility remained at PRs 335 billion at end-June 2015.
- Arrears reduction plan and targets:
  - Reduce accumulation of payables from PRs 209 billion in FY 2014/15 (including PHCL loan) to under PRs 100 billion in FY 2015/16, with a view to further halving new arrears accumulation by FY2018/19.
  - Missed the end-June IT on the flow of power sector arrears due to temporary delay in two regions; full deviation to be recovered during current fiscal year and remain on track for upcoming quarterly targets.
- Operational measures to reduce arrears and losses:
  - Reduce losses and improve collections through capital expenditures and revenue-based load management; overall losses in FY2014/15 remained at 18.7 percent.
  - Collections declined on average by 1 percent to 88.1 percent, primarily due to two DISCOs.
  - Replace chief executives and some senior management in poorly performing DISCOs and work with provincial governments to address their payment problems.
  - Incorporate late payment surcharges and higher system losses into the FY2014/15 determined tariffs to help arrest circular debt build-up and improve cash-flow.
  - Allocate about 0.1 percent of GDP of budgetary resources to clear part of the stock of arrears that accrued in AJK, FATA and Baluchistan Tube Wells.
  - Move stock of PHCL debt into DISCOs’ balance sheets where privatization will take place to reduce PHCL debt stock and ease servicing; continue to fully service PHCL obligations in the meantime.

Power Sector — monitoring, enforcement, and legal reforms
- Monitoring and enforcement:
  - Signed performance contracts with the boards of nine DISCOs and began monthly monitoring of specified performance indicators; invoked remedial measures for management of three DISCOs who failed to comply.
  - Enforce performance by setting quarterly loss-reduction, collection, and recovery targets (as defined in the TMU) consistent with arrears reduction plan for each DISCO by mid-October 2015 (new SB).
- Legal and institutional reforms:
  - Amendments to Penal Code 1860 and Code of Criminal Procedures 1898 promulgated through Presidential Ordinance lapsed in August 2014; Bill currently at the Senate Committee after National Assembly clearance and expected to be enacted by end-September, 2015.
  - Drafted new Electricity Act to modernize sector governance; circulated to provinces for comments and to be shared with broader stakeholders before finalizing and submitting to the CCI by end-September 2015.
  - Work with the Ministry of Law on creating an effective system for handling electricity theft cases to be effective by end-2015.

*Source: _cr15278 - 7.5 percent of filed tax returns.*

### 35.      Demand Side Management. To improve resource allocation and energy efficiency, we will

### _cr15278 - 35.      Demand Side Management. To improve resource allocation and energy efficiency, we will

### Demand Side Management
- Use pricing (¶31) and other market-based instruments to improve resource allocation and energy efficiency.
- Finalize required approvals to begin Advanced Metering Infrastructure (AMI) by end-September 2015.
- Initial AMI implementation in LESCO and IESCO to:
  - help reduce commercial losses,
  - increase recoveries,
  - better manage revenue-based load shedding.
- Consultative process completed on draft Pakistan Energy Efficiency and Conservation Act.
  - CCI approved the bill in August 2014; it is now in the National Assembly.
  - Expect enactment in early 2016.
  - The Act will include equipment performance standards and cover key electrical and gas equipment and appliances not yet covered.
  - Preparing necessary implementing regulations in parallel.

### Supply Side Management (Power)
- Prioritize use of gas and coal rather than fuel oil in electricity generation.
- Committed to a transition to market-based allocation of natural gas in the medium-term.
- Continue rehabilitation of generation plants and upgrade electricity transmission and distribution to reduce technical losses.
- Signed performance contracts with two state-owned generation companies run on furnace oil to reduce their losses.
- Continue development of hydropower projects, with start of construction of the Dasu project.
- Promote private investment in power generation through new entrants and expansions of existing IPPs, adhering to energy mix targets and least-cost generation plans.
  - Expansions include around 1300 MW in 2015 and are expected to add an additional 700 MW in generation capacity in 2016.
  - Beyond this, 8.3 GW generation capacity is envisaged through FDI under the CPEC over 2017-2021, with additional capacity expected in the longer term.
- Power purchasing agreements with investors should be agreed in a way that mitigates potential fiscal risks.

### Governance, Regulatory, and Transparency Improvements (Power)
- Appointed a new Chairman and Board member with financial skills to NEPRA.
- NEPRA preparing to determine multi-year tariffs.
  - DISCOs prepared five-year investment plans and submitted them to NEPRA.
  - First phase: determine and notify multi-year tariffs for FESCO, IESCO, and LESCO by end-November 2015 (SB); remaining DISCOs done annually on a rolling basis.
- Set up the Central Power Purchasing Agency Guarantee (CPPA(G)) and amended its Articles of Association.
  - Separated CPPA(G) from the National Transmission and Despatch Company (NTDC).
  - NTDC’s license modified so it can no longer purchase or sell electricity.
  - Market Operator Registration, Standards and Procedure Rules 2015 issued in late May 2015.
  - Commercial Code approved by NEPRA in early June 2015.
  - Key CPPA(G) staff being put in place.
  - NTDC and CPPA(G) signed an Administrative Agreement to make CPPA(G) functional.

### Energy public sector enterprise (PSE) reform
- Transferred governance of DISCOs, three GENCOs, and the NTDC to new boards of directors and management.
- Committed to building WAPDA’s institutional capacity and strengthening WAPDA’s financial capacity by allowing the tariff to incorporate capital investment plans.
- Committed to ensuring timely payments by CPPA(G) for all power purchased from WAPDA Hydel.
- Included several DISCOs in privatization plans with goal of privatizing three of them in the next fiscal year (¶45).
- Begun process of introducing competitive pricing and direct contracting between power producers and wholesale customers through policies and timeline via an ECC decision.

### Oil and Gas Sector — Supply
- Received first Liquefied Natural Gas (LNG) imports at the end of March 2015.
- Committed to full pass-through of the cost of imported LNG to the end-user purchase price (including to Compressed Natural Gas) and will finalize contractual agreements with all relevant parties.
- Finalize independent power producers’ letters of credit by September 2015.
- Issued new exploration and production concessions for domestic gas resources and continue to limit further expansion of gas distribution networks for domestic consumption.

### Oil and Gas Sector — Pricing
- Gas price rationalization plan devised in December 2013 aims to:
  - encourage new investment,
  - promote efficiency in gas use,
  - assure no fiscal cost from the gas sector,
  - eliminate distortions from the existing gas price structure.
- Under the Petroleum Exploration and Production Policy 2012 (2012 Policy):
  - Incentivize production with price increases ranging from 2.8–3 U.S. dollars per MMBTU to 6–10 U.S. dollars per MMBTU.
  - Ensuring conversion of existing concessions to the 2012 Policy with international partners’ support.
  - So far, converted 92 concessions; remaining 28 currently being reviewed in the Ministry of Petroleum and Natural Resources to be completed by end-September 2015, subject to determination of eligibility under the 2012 Policy.
  - Awarded 46 concession agreements for exploration of new blocks under the 2012 Policy and expect to award an additional 10–15 exploration concessions by end-December 2015.
- Cost recovery and tariff adjustments:
  - Loss in cost recovery incurred by gas companies due to delayed price notifications of FY2014/15 (due in July and January) was partially recuperated in the new tariff notified and implemented, as prior action, in line with the OGRA determination, on August 31, 2015.
  - Remaining losses will be recuperated in the January 2016 gas price notification.
  - Will make necessary adjustments to notified prices to reflect imported gas prices so that the cost of this gas will be fully reflected in the tariff on a monthly basis.
- GIDC Act:
  - National Assembly passed the GIDC Act which was signed by the President on May 21, 2015.
  - Taken measures to recover PRs 57 billion in FY 2014/15.
  - Will continue to focus on areas where collecting agents have already collected the GIDC in their prices, in accordance with the GIDC Act.
- Downstream restructuring:
  - Evaluating downstream gas business to reduce inefficiencies in transmission and distribution.
  - World Bank awarded a contract to consultants at the end of June 2015 to support study of restructuring, unbundling, and eventual privatization of the two gas utility companies.
  - Study will formulate recommendations to segregate gas network into one transmission and multiple distribution companies, with independent profit and cost centers.
  - Mechanism will be developed for determining separate transmission and distribution tariffs.

### Oil and Gas Sector — Governance
- Established performance monitoring units in the Ministry of Water and Power and Ministry of Petroleum and Natural Resources (MPNR) which report progress quarterly to the ECC.
  - Committed to posting quarterly monitoring reports on the websites of the concerned ministries.
  - First monitoring report approved by the ECC in April 2015 and disclosed on the MPNR’s website.
- Regulatory staffing:
  - Advertised vacant positions on the Board of the Oil and Gas Regulatory Authority (OGRA).
  - Appointed the Member Finance; were not able to select the Member Oil and re-advertised the position with revised criteria.
- Encourage bilateral contracting between producers and consumers; OGRA reviewing rules for third party access to the gas transmission system.
- Pursuing loss reductions by benchmarking international standards, investment, managerial and administrative improvements, and building capacity of gas distribution companies.
  - Current level of Unaccounted For Gas (UFG) is on average around 11 percent due to commercial and technical losses.
  - Gas companies submitted loss reduction plans to the MPNR in May 2015.
  - Sui Southern Gas Company is working with the World Bank on the Natural Gas Efficiency Project (NGEP).
- Gas (Theft Control and Recovery) Ordinance 2014:
  - Promulgated by the President in January 2014 and sent to Parliament.
  - Senate approved the Ordinance; now under consideration by the National Assembly.
  - Expect enactment by end-September 2015.

### Improving the Business Climate, Liberalizing Trade, and Reforming Public Enterprises — Business Climate
- Working to improve business climate, trade regime, and PSEs to increase foreign and domestic private investment and boost economic growth.
- Identified impediments: legal framework for creditors’ rights and contract enforcement, barriers to new business start-ups, complex legal, taxation and border trade requirements, and limited access to finance.
- Finalized a time-bound detailed implementation plan in October 2014 identifying legislative and administrative actions, institutional roles and resource requirements.
- Focus on six indicators: construction permits, paying taxes, enforcing contracts, starting businesses, trading across borders, and getting credit.
- Building consensus with provincial authorities, focusing on property registration and contract enforcement.

### New Firms (Business Registration)
- SECP, FBR, and Employees’ Old Age Benefits Institution (EOBI) launched a virtual One-Stop-Shop (OSS) for business registration in December 2014.
- Physical OSS set up in Lahore in April 2015; another physical OSS to be set up in Islamabad by September 2015.
- Streamlining procedures and database sharing to facilitate new firm creation.
  - So far reduced two procedures and two days and plan to save an additional eight days of the procedures.

### Contract enforcement
- Completed in March 2014 a study to identify changes to the bankruptcy regime for rehabilitation of weak but viable companies.
- Reforming bankruptcy framework with two legislative measures:
  - Corporate Rehabilitation Act to provide a mechanism for reorganization and rehabilitation of distressed companies.
  - CRC Act envisaging private Corporate Restructuring Companies to take over assets of bankrupt companies (¶26).
  - CRC Act placed before Parliament in April 2015.
- Established Alternative Dispute Resolution (ADR) mechanisms in Karachi and Lahore.
  - ADR to be extended to Islamabad and Rawalpindi by end-September 2015 and work begun to expand to Peshawar and Quetta.
- Piloting commercial courts in Lahore to expedite resolution of commercial disputes and contract enforcement.

### Paying Taxes
- Completed a review to reduce number of existing processes and forms for sales and income tax by end-March 2015 (SB).
  - Identified 39 income and sales tax processes that required elimination or streamlining.
  - Took measures to streamline, simplify, and automate procedures and developed 8 IT-based modules.
  - Launched integrated end-to-end IT solution (IRIS) on the following 8 processes: registration, declaration, audit/assessment, rectification, penalty, default surcharge, refunds, and exemption certificates.
  - Will continue to streamline and fine-tune the system based on taxpayer feedback and international best practices.

### Access to credit
- Access to finance for poor, women, and marginalized segments including micro, small and rural enterprises remains very limited.
- In June 2015, SBP issued guidelines to banks to facilitate opening bank accounts for the unbanked to meet the National Financial Inclusion Strategy (NFIS) target of 50 percent adult population with bank accounts by 2020.
- Devising plans to strengthen financial literacy of new client groups.
- Credit Bureau Bill enacted in August 2015 (end-November 2015 SB) to improve credit information system and help banks extend credit.
  - The Act will ensure credit information sharing protects privacy rights of individuals.

### Trade Policy
- Trade policy reforms intended to increase consumer welfare and stimulate growth through increased competition.
- Simplifying tariff rates, phasing out SROs that establish special rates and/or nontariff trade barriers in some 4,000 product areas, and improving trade relations.

### Tariff simplification
- Implementing plan to simplify tariff structure over three years to a simple framework with four slabs between 2 and 20 percent rates with fewer exceptions.
  - FY2015/16 budget reduced tariff slabs from six to five and further eliminates trade-related SROs.
  - Implementation to reduce slabs from five to four to be completed by July 2016.

### Improved trade relations
- Implementing strategy to take full advantage of trade preferences from the European Union under the Generalized System of Preferences plus benefits from January 1, 2014 on a broad range of Pakistan’s exports.
- Committed to promoting trade with regional countries, especially under various regional trade arrangements.

*IMF staff report excerpt (Pakistan).*

### 45.      Public Sector Enterprises (PSEs). We are working to reform or privatize PSEs, focusing on

### 45. Public Sector Enterprises (PSEs)

### Privatization program and objectives
- Goal: reform or privatize PSEs, focusing on limiting poor performance and improving public sector resource allocation.
- Cabinet Committee on Privatization initially approved a list of 31 PSEs for action and subsequently added another 8 PSEs to the list.
- Program sequencing: developed a plan to sequence the capital market and pre-privatization restructuring for these firms.
- Transaction cadence: privatization program aimed at offering and/or marketing one or two transactions in each quarter during the upcoming year.

### Capital Market Transactions Roadmap
- Identified ten companies (listed in the TMU) in the oil and gas, banking, and insurance sectors for block sales and primary or secondary public offerings.
- Completed minority stake sales:
  - United Bank Limited (UBL): June 2014
  - Pakistan Petroleum Limited (PPL): June 2014
  - Allied Bank Limited (ABL): December 2014
  - Habib Bank Limited (HBL): April 2015
- Planned transactions and deadlines:
  - State Life Insurance Corporation: finalize (as defined in the TMU) sale of minority shares by end-March 2016.
  - Mari Petroleum Limited and Pak Arab Refinery Limited (PARCO): finalize sale by end-June 2016.
- Roadmap update: authorities working towards updating the roadmap for the remaining three companies in the list.

### Strategic Private Sector Participation
- Identified 25 companies (listed in the TMU) for strategic partnerships to unlock potential through managerial and investment participation and potentially increase value of government’s residual shareholding.
- Policy balance: efforts to balance objectives of sale proceeds while adequately addressing labor market issues and social implications.

### Electricity Distribution Companies (DISCOs)
- Financial advisors appointments and bidding/completion timelines:
  - Faisalabad Electric Supply Company (FESCO): financial advisors appointed July 2014; complete bidding by end-June 2016 (new SB); finalize transaction by end-September 2016.
  - Islamabad Electric Supply Company (IESCO) and Lahore Electric Supply Company (LESCO): financial advisors hired January 2015; expected completion of bidding by end-June 2016; finalize transactions by end-September 2016.
  - Gujranwala Electric Power Company (GEPCO): financial advisors hired April 2015.
  - Hyderabad, Peshawar, Quetta, Sukkur, and Multan Electric Supply Companies (HESCO, PESCO, QESCO, SEPCO, and MEPCO): financial advisors hired May 2015.
- Expectation: finalization of these DISCO transactions in 2016 and 2017.
- Structural benchmark (Table 2): "Determine and notify multi-year tariffs for FESCO, IESCO, and LESCO, as defined in the TMU" — end-November 2015 (facilitates privatization of the DISCOs and reduction of energy arrears).
- Structural benchmark (Table 2): "Complete the bidding process for shares of FESCO" — end-June 2016.

### Other companies (power and related)
- Heavy Electrical Complex (HEC): planned sale in May 2015 cancelled because the winning bidder could not provide funds to close the transaction.
- National Power Construction Co. (NPCC): bidding process completed August 2015; finalize transaction by end-September 2015.
- Northern Power Generation Company Limited (NPGCL): financial advisors appointed July 2014; expect bidding completed by end-June 2016; finalize transaction by end-September 2016.
- Jamshoro Power Generation Company Limited (JPCL): financial advisors appointed April 2015; bidding process expected completion by end-September 2016; finalize transaction by end-December 2016.
- Lakhra Power Generation Company Limited (LPGCL) and Central Power Generation Company Limited (CPGCL): financial advisors finalized May 2015; bidding completion expected by end-September 2016; finalize by end-December 2016.
- Kot Addu Power Company (KAPCO): financial advisor hired July 2015; expected bidding completion for sale of government's equity by end-March 2016; finalize transaction by end-June 2016.
- Plans being developed for the remaining companies on the list.

### Restructuring plans and specific enterprises
- General: restructuring plans developed for Pakistan Steel Mills (PSM) and Pakistan Railways (PR); financial advisors finalizing plan for Pakistan International Airlines (PIA).

- Pakistan International Airlines (PIA):
  - Financial advisors appointed July 2014 to seek potential options for restructuring and strategic private sector participation in the core airline business by end-March 2016.
  - Diligence process completed in August 2015.
  - Detailed plans for private participation being finalized.
  - Structural benchmark (Table 2): "Solicit expressions of interest for strategic private sector participation for the 26 percent of PIA's shares" — end-December 2015 (Modified SB).

- Pakistan Steel Mills (PSM):
  - Appointed a professional board and a new chief executive officer and approved a comprehensive restructuring plan to prepare for potential strategic private sector participation.
  - Operational constraint: due to gas supply difficulties, operational efficiency remained around 18 percent.
  - Financial advisors hired April 2015; due diligence completed August 2015.
  - Expected timeline: complete bidding process by end-December 2015; finalize transaction by end-March 2016.

- Pakistan Railways (PR):
  - Challenges: aging and shortage of equipment, overstaffing, and large debts.
  - Revenue improvements: improved revenue in FY 2013/14 and FY 2014/15 by 32 and 45 percent, respectively, through tariff and expenditure rationalization and improved occupancy rates.
  - Since April 2014: moving forward with comprehensive restructuring plan including business process and institutional improvements, financial stability, and service delivery.
  - Governance: Appointment of the Railway Board completed in February 2015.
  - Short-term focus: improvements in freight transportation through creation of a freight company, and adding more locomotives and wagons.
  - FY2014/15 additions: added 35 new locomotives for both passenger and freight service, and more than doubled revenues from freight operations.

### Program monitoring and related numeric references (from the TMU and tables)
- Net international reserves (NIR) of the SBP on June 30, 2015: US$2,440 million.
- Program exchange rate: 99.66 rupee per one U.S. dollar.
- Examples of performance criteria and indicative targets listed in the program (as framed in the TMU and tables):
  - Floor on the net international reserves (NIR) of the State Bank of Pakistan (SBP) (millions of U.S. dollars).
  - Ceiling on the net domestic assets (NDA) of the SBP (stock, billions of Pakistani rupees).
  - Ceiling on the general government budget deficit excluding grants (cumulative flows, billions of rupees).
  - Ceiling on net government budgetary borrowing from the SBP (including provincial governments) (stock, billions of rupees).
  - Ceiling on SBP’s stock of net foreign currency swap/forward contracts (millions of U.S. dollars).
  - Continuous performance criterion: ceiling on the accumulation of external payment arrears by the general government.
  - Indicative targets: floor on targeted cash transfers spending (BISP) (cumulative, billions of Pakistani rupees); floor on net tax revenues collected by the FBR (cumulative, billions of Pakistani rupees); ceiling on power sector payables (flow, billions of Pakistani rupees).

*Source: Excerpt from the IMF staff report TMU and program annexes (content unit: _cr15278 - 45. Public Sector Enterprises (PSEs)).*

### 6.      Aggregate net position in the foreign exchange derivatives is defined as the aggregate

### 6.      Aggregate net position in the foreign exchange derivatives is defined as the aggregate

### Definitions of monetary and fiscal aggregates
- Aggregate net position in the foreign exchange derivatives: aggregate net positions in forward and futures in foreign currencies of the SBP vis-à-vis the domestic currency (including the forward leg of currency swaps). The SBP’s aggregate position was –US$1.7 billion at end-June 2015.
- Reserve money (RM): sum of currency outside schedule banks (deposit) money banks); schedule banks’ domestic cash in vaults; schedule banks’ required and excess rupee and foreign exchange deposits with the SBP; and 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.
- Net domestic assets (NDA) of the SBP: RM minus NIR, minus other assets not included in gross official international reserves, minus commercial bank required and excess reserves at the SBP in foreign currency, plus medium and long-term liabilities (i.e., liabilities with a maturity of one year or more) of the SBP, plus other foreign liabilities not included in official reserve liabilities, minus the balance of outstanding Fund purchases credited to the government account at the SBP. NDA is composed of net SBP credit to the general government plus outstanding credit to domestic banks by the SBP (including overdrafts) minus liabilities not included in RM and other items net.
- Net government budgetary borrowing from the SBP (including provincial governments): SBP claims on the government minus government deposits with the SBP. SBP claims on the government include government securities, treasury bills, treasury currency, and debtor balances. SBP claims on the government exclude accrued profits on government securities. Government deposits with the SBP exclude the Zakat Fund (Table 4).
- Net purchase of foreign exchange: outright purchase of foreign exchange minus outright sale of foreign exchange in the foreign exchange spot market as net addition to the stock of NIR of the SBP by using foreign exchange market intervention.
- External public debt arrears: all unpaid debt-service obligations (i.e., payments of principal and interest) of the general government (government, 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 EFF, is set out in Point No. 9 of the Guidelines on Performance Criteria with Respect to Foreign Debt (Executive Board Decision No. 6230–(79/140), last amended by Executive Board Decision No. 14416–(09/91), adopted August 31, 2009). The ceiling on external payment arrears is set at zero.

### Budget accounting and financing definitions (monitoring and components)
- Overall budget deficit (excluding grants) monitoring: quarterly under the cash balance of the general government balance, excluding grants, including the operations of local (provincial) governments financed from local funds. Measured below the line and will include:
  - Net external financing, excluding valuation gains and losses.
  - Change in net domestic credit from the banking system, excluding valuation gains and losses from deposits denominated in foreign currency.
  - Change in the net domestic nonbank financing, excluding valuation gains and losses. These include:
    - (i) domestic privatization receipts transferred from the privatization accounts to the budget,
    - (ii) the stock of issued government securities held outside the general government and the banking system, net of valuation changes,
    - (iii) net deposits and reserves received by the government (public accounts deposits),
    - (iv) any other government borrowing from domestic nonbank sources net of repayments,
    - minus (v) government deposits with nonbank financial institutions.
  - Total external grants to the federal and provincial governments: sum of project grants, cash external grants for budgetary support, capital grants reflecting the principal amounts of external debt cancellation or swaps, and other grants.
- Net external program financing: includes external privatization receipts; budget support grants; budget support loans from multilateral (other than the IMF, but including World Bank and Asian Development Bank (ADB) budget support and program loans), official bilateral budget support loans, and private sector sources (e.g., bonds); rescheduled government debt service and change in stock of external debt service arrears net of government debt amortization due on foreign loans, the latter including any accelerated amortization including related to debt swaps or debt cancellation recorded as capital grants. Also includes foreign loans on-lent to financial institutions and companies (public or private) and emergency relief lending. Excludes all external financing counted as reserve liabilities of the SBP. Amounts projected for net external program financing and external grants are provided in Table 3.
- Net external budget financing: net external program financing minus privatization receipts, minus budget support grants, plus all other external loans for the financing of public projects or other federal or provincial budget expenditures, plus transfers of external privatization receipts from the privatization account to the budget.
- Quarterly debt management risk reports (DPCO): reports covering exposure indicators to financial risk (redemption profile of local and foreign currency debt, average life, share of domestic debt falling due in the next 12 months, average time to re-fixing, share of local and foreign currency debt re-fixing its interest rate over the next 12 months, composition of debt stock by currency and share of short term foreign currency debt over net international reserves).

### Structural benchmarks, legal changes, and privatization targets
- Structural benchmark on hiring of six transaction advisors for end-March 2014:
  - Three transaction advisors to undertake the sale of minority shares for three PSEs from the list of capital market transactions with at least one offering in the domestic and one offering in international markets.
  - One transaction advisor for electricity distribution company and one generation company from the list of strategic private sector participation.
  - One transaction advisor to undertake the restructuring of Pakistan International Airlines Corp (PIAC) and to seek a strategic investor.
- Draft legislation to limit authority to grant tax concessions/exemptions: consistent with the presidential ordinance No. IX of 2015 and specifies exceptional circumstances under which the Economic Coordination Committee of the cabinet retains the authority to grant temporary exemptions: national security, natural disaster, national food security in emergency situations, protection of national economic interests in situations arising out of abnormal fluctuation in international commodity prices, removal of anomalies in duties, development of backward areas, and implementation of bilateral and multilateral agreements.
- “Relevant tax laws” for structural benchmark on submission of amendments for end-December 2014: Income Tax Ordinance, 2001; the Federal Excise Act, 2005; the Sales Tax Act, 1990; the Customs Act, 1969; and any other relevant law.
- Finalization of privatization transaction: defined as reaching financial closure, i.e., funds from the sale are remitted to government accounts.

### Power sector payables and electricity tariff framework
- Power sector payables arise from:
  - (i) nonrecoveries from supply to AJ&K, other federal and provincial governments including FATA, private consumers, and Baluchistan Tube Wells,
  - (ii) accrued markup from the servicing of PHCL,
  - (iii) line losses and noncollections that are not recognized by NEPRA,
  - (iv) GST NonRefund,
  - (v) late payment surcharges,
  - (vi) the delay in determinations.
- Electricity Tariff Pricing Formulas and Definitions (MEFP ¶31):
  - Current notified weighted average electricity tariff: PRs 11.45/kWh for all classes of consumers.
  - FY 2014/15 electricity bill notified effective from June 10, 2015, includes:
    - weighted average tariff of PRs 9.91/kWh,
    - rationalization surcharge of PRs 1.54/kWh,
    - debt servicing surcharge (DSS) of PRs 0.43/kWh,
    - Neelum-Jhelum Surcharge of PRs 0.1/kWh.
  - Current notified electricity tariffs for users at 0-50 kWh/month: PRs 2/kWh (retained).
- Weighted Average Notified Tariff formula: (sum of category tariff rates × DISCOs’ estimated sales by category for Industrial, Residential, Commercial, Single Point Supply for further distribution, AJ&K users, Agriculture Tube-wells, Other users) divided by DISCO’s total sales to Industrial, Residential Users consuming more than 200kWh, Commercial, Single Point Supply, Other Users, AJ&K Users, and Agriculture Tube-wells = PRs 9.91 kWh.
- Rationalization surcharge PRs 1.54/kWh: reflects sector operation costs not recovered through the tariff; consists of:
  - (a) line losses not recognized by NEPRA;
  - (b) noncollections not recognized by NEPRA;
  - (c) financing costs due to delays in tariff determination;
  - (d) zero-out subsidy in most of the nonresidential consumers;
  - (e) cost of equalizing tariffs across DISCOs.
- Debt servicing surcharge (DSS) definition and calculation:
  - DSS FY2015/16 = Total Annual Interest Paid on STCF balance/Estimated volume of electricity sales in FY 2015/16 (excluding lifeline and FATA domestic consumers assumes collections at the actual rate of 92 percent and base case losses of 18 percent).
  - = PRs 29.3(billions)/68(TWh) = PRs 0.43/kWh.
- STFC Debt Service (PRs billions):
  - FY2014/15: Q1 9.0, Q2 6.9, Q3 9.4, Q4 7.0, Total 32.2.
  - FY2015/16: Q1 8.8, Q2 5.5, Q3 9.8, Q4 5.2, Total 29.3.
- Neelum-Jhelum Surcharge: PRs 0.10/kWh on all classes of consumer except the lifeline consumption of 0-50 kWh/month.

### Court stay order impact and monitoring of payables
- Court stay order on FY 2013/14 surcharges (MEFP ¶31) increased payment arrears by around PRs 37 billion for the November 2014—June 2015 period. Surcharges and financial impact (PRs billion):
  - Equalization@ PRs 0.13/KWh: 5
  - Equalization under Universal Obligation fund@ PRs 0.47/KWh: 15
  - Neelum-Jehlum @ PRs 0.1/KWh: 4
  - Debt servicing surcharge (STFC) @ PRs 0.43/KWh: 13
  - Total: 37
- Monitoring mechanism to track stock and flow of payables (MEFP ¶33):
  - Stock of payment arrears: payables of PRs 313 billion, and the stock of PHCL of PRs 335 billion as of end-June 2015.
  - Projected evolution of stock and flow of payables (selected figures preserved from table):
    - Total (flow) 2014/15 Q4 Target Actual: 42 57; 2015/16 Q1 Q2 Q3 Q4 Total: 31 24 20 22; Total 209 98.
    - Total (stock) 2014/15: 322; 2015/16 end-June actual: 313.
  - Notes:
    - 1/ The decline in actual flow of payables for 2014/15 is due to the impact of delayed determinations based on lower oil prices.
    - 2/ All figures have been rounded to nearest whole numbers.

### Structural and operational benchmarks for DISCOs and privatization
- Structural benchmark on performance of DISCOs (MEFP ¶34): By mid October 2015, quarterly quantitative targets will be determined by MWP and each DISCO for technical and distribution losses, and collection from current consumers.
- Definition of transaction finalization (MEFP ¶45): transaction is ‘finalized’ on reaching financial closure (funds remitted to government accounts).

### Adjustors to program ceilings and floors
- NIR floor adjustor (¶25): floor on NIR will be adjusted upward (downward) by the cumulative excess (shortfall) of cash inflows from multilateral and bilateral creditors, Coalition Support Fund (CSF), and bond issuance relative to projected inflows (Table 2). Cumulative cash inflows defined as external disbursements (including grants) from official multilateral creditors (including, but not limited to Asian Development Bank, Islamic Development Bank, and World Bank), official bilateral creditors (including, but not limited to DFID, UK, USAID), and external bond placements usable for financing the central government budget. The adjustor is modified for the end-June 2014 calculation of the fourth review to exclude the proceeds of the US$2 billion Eurobond transaction. This modification does not apply to subsequent reviews.
- NDA ceiling adjustor (¶26): ceiling on NDA will be adjusted downward (upward) by the cumulative amount of any excess (shortfall) of budget support loans or budget support grants compared to the program amounts (Table 3) and Euro bond issuance or project grants compared to projected inflows (Table 2). Budget support grants and loans to the public sector defined as grants/disbursements received by the government (including provincial governments) for direct budget support from external donors and not related to projected financing.
- Consolidated overall budget deficit ceiling adjustors for FY2014/15 and FY2015/16 (¶27):
  - FY2014/15 upward adjustments for cumulative excess in net external program financing in rupee terms: up to PRs 15 billion at end-September, PRs 25 billion at end-December, PRs 42 billion at end-March, and PRs 50 billion at end-June.
  - FY2014/15 downward adjustments for shortfall in federal development spending below: PRs 25 billion at end-September, PRs 80 billion at end-December, PRs 243 billion at end-March, and PRs 410 at end-June.
  - FY2015/16 downward adjustments for shortfall in federal development spending (excluding one-off security/resettlement spending) below: PRs 35 billion at end-September, PRs 90 billion at end-December, PRs 250 billion at end-March, and PRs 510 at end-June.
  - Adjustments for BISP cash transfers: ceiling adjusted downward for any shortfall and adjusted upward for over performance up to PRS 12 billion in FY2014/15 and PRs 6 billion in FY2015/16 from their indicative targets.
  - FY2015/16 upward adjustment for one-off spending up to PRs 100 billion in total on security enhancements related to fighting terrorism (budget code: ID 8262, demand no. 114, Development Expenditure of Finance Division) and resettlement of internally displaced persons (budget code: ID 8261, demand no. 114, Development Expenditure of Finance Division).

### Public Sector Enterprises (PSEs) — privatization and restructuring lists
- List of Companies for Capital Market Transactions:
  - Oil and Gas Development Co. Ltd (OGDCL)
  - Pakistan Petroleum Ltd (PPL)
  - Mari Petroleum Ltd.
  - Government Holding Private Ltd (GHPL)
  - Pak Arab Refinery Ltd (PARCO)
  - Habib Bank Limited (HBL)
  - United Bank Limited(UBL)
  - Allied Bank Limited (ABL)
  - National Bank Limited (NBP
  - State Life Insurance Corp. (SLIC)
- List of Companies for Strategic Private Sector Participation:
  - National Insurance Co. Ltd. (NICL)
  - National Investment Trust Ltd. (NITL)
  - Small & Medium Enterprise (SME) Bank
  - Pakistan Reinsurance Co Ltd. (PRCL)
  - Heavy Electrical Complex (HEC)
  - Kot Addu Power Company Ltd. (KAPCO)
  - Islamabad Electric Supply Co. Ltd (IESCO)
  - Faisalabad Electric Supply Co. Ltd (FESCO)
  - Lahore Electric Supply Co. Ltd (LESCO)
  - Gujranwala Electric Power Co. Ltd (GEPCO)
  - Mutan Electric Power Co. Ltd (MEPCO)
  - Hyderabad Electric Supply Co. Ltd (HESCO)
  - Sukkur Electric Power Co. Ltd (SEPCO)
  - Peshawar Electric Supply Co. Ltd (PESCO)
  - Quetta Electric Supply Co. Ltd (QESCO)
  - Lakhra Power Generation Company
  - Jamshoro Power Generation Co. Ltd (JPCL)
  - Northern Power Generation Co. Ltd (NPGCL)—Thermal Power Station—Muzaffargarh)
  - National Power Construction Co. (NPCC)
  - Pakistan Steel Mills Corp (PSMC)
  - Pakistan Engineering Co Ltd (PECO)
  - Pakistan International Airlines Corp (PIAC)
  - Pakistan National Shipping Corp (PNSC)
  - Convention Centre, Islamabad.
  - PIA Investment Ltd—Roosevelt Hotel NY & Scribe Hotel, Paris
- List of Companies for Restructuring followed by Privatization:
  - Pakistan State Oil Co Ltd (PSO)
  - Sui Southern Gas Co Ltd (SSGC)
  - Sui Northern Gas Pipelines Ltd (SNGPL)

*Source: Excerpt from IMF staff report text (program documentation).*

### 28.      Performance under the program will be monitored from data supplied to the IMF by the

### _cr15278 - 28.      Performance under the program will be monitored from data supplied to the IMF by the

### Monitoring framework and obligations
- Performance under the program will be monitored from data supplied to the IMF by the SBP, Ministry of Finance and Ministry of Water Power as outlined in the table.  
- The authorities will transmit promptly to IMF staff any data revisions as well as other information necessary to monitor the arrangement with the IMF.

### State Bank of Pakistan (SBP) reporting (selected items, frequency and timing)
- SBP balance sheet: Summary; Frequency: Weekly; Timing: First Thursday of the following week.  
- SBP balance sheet: Summary at program exchange rates; and by official exchange rates; Frequency: Monthly; Timing: Within 15 days of the end of each month.  
- Monetary survey: Summary banking system balance sheet for the central bank at both program exchange rates and by chart of accounts at actual official exchange rates; the consolidated balance sheet of commercial banks at actual official exchange rates; Frequency: Monthly; Timing: Within the first 30 days of each month.  
- International reserves: By (i) program exchange rates; and (ii) at actual official exchange rates; Frequency: Daily; Timing: The following working day.  
- Foreign exchange market: Market exchange rates (buying and selling); weighted average customer exchange rate; monthly trade volume, and high and low exchange rate of the interbank, the KERB market; Frequency: Daily/Monthly; Timing: Within one day/ monthly within 5 working day.  
- Foreign exchange market: SBP foreign exchange operations, and intervention,( volume); Frequency: Daily; Timing: Within one day.  
- Foreign exchange market: SBP operation against the domestic currency in swap/forwards by (volumes); Frequency: Daily; Timing: Within one day.  
- Foreign exchange market: Breakdown of short, long, counterparts, of the swap/forward contracts; Frequency: Monthly; Timing: Third working day of the following month.  
- Foreign exchange market: Outstanding swap/forward positions by maturity buckets, and counterparties.; Frequency: Monthly; Timing: Third working day of the following month.  
- Net International Reserves: Net International reserves at program exchange rates as defined in TMU, including a breakdown by currency and specification of nostro balances with foreign branches of National Bank of Pakistan.; Frequency: Quarterly; Timing: Seventh working day after quarter end.  
- External financing: Foreign assistance received and projections for the coming four quarters. Please categorize all grants and loans by program/project, and the amounts received/expected in cash.; Frequency: Quarterly; Timing: Within 15 days of the end of each quarter.  
- Interbank money market: Daily interbank repo volume and interest rate of trades; Frequency: Daily; Timing: Within one day.  
- SBP operations: Repo (reverse repo) operations, open market operations; Frequency: Weekly; Timing: First Monday of the following week.  
- Bank liquidity: Excess reserves, in local currency; Frequency: Bi-weekly; Timing: With a lag of 15 days.  
- T-bill and coupon bond financing, SBP securities: Auction data: date, original and remaining maturities, issuance volume, allocation, average yield and coupon yield (if available); Frequency: Fortnightly; Timing: Last working day of the fortnight.  
- Banking data: Sectoral distribution of loans and deposits; loans and deposits by local and foreign currency; deposit and lending rates,; Frequency: Monthly; Timing: Within 25 days of the end of each month.  
- Banking data: Loan maturities; Frequency: Quarterly; Timing: Within 45 days of the following quarter.  
- Banking data: Regularity capital deposit requirement deposits of foreign and domestic schedule banks with the SBP (account numbers 33052 and 330506); Frequency: Monthly; Timing: Within 15 days of the end of each month.  
- Banking indicators: Capital adequacy; asset composition and quality; profitability; liquidity; open FX positions; Frequency: Quarterly; Timing: Within 45 days of the following quarter.  
- Banking sector stress tests: Results of stress tests on exchange rate, liquidity, and credit risk; Frequency: Quarterly; Timing: Within 60 days.  
- Transfers: Workers’ remittances.; Frequency: Monthly; Timing: Within 25 days of the following month.  
- Other monetary data: The SBP survey, ODCs and DCs published in IFS.; Frequency: Monthly; Timing: Within 45 days of the end of each month.  
- Balance of payments: Detailed export and import data; Detailed balance of payments data; Frequency: Monthly; Timing: Within 28 days of the end of each month.  
- Privatization receipts: Balance on the PC Fund account; gross inflows into and outflows from the PC Fund account during the month, specifying the nature of each transaction; Frequency: Quarterly; Timing: Within seven days of the end of each quarter.

### Ministry of Finance (MOF) reporting (selected items)
- External debt: Disbursements and stock of outstanding short-term and contracting or guaranteeing and outstanding stock of medium-and long-term external debt of the government, the SBP, and state-owned companies; any stock of arrears on external debt service and outstanding stock of government guarantees and external arrears.; Frequency: Monthly; Timing: Within 25 days of the following month.  
- External financing: Foreign assistance received and projections for the coming four quarters. Please categorize all grants and loans by program/project, and the amounts received/expected in cash and in kind.; Frequency: Quarterly; Timing: Within 15 days of the end of each quarter.  
- Federal government State budget; Frequency: Monthly; Timing: Within 30 days of the end of each month.  
- Consolidated general government (Federal and provincial governments); Frequency: Quarterly; Timing: Within 45 days of the end of each quarter.  
- Consolidated general government (Federal and provincial governments); Frequency: Annual; Timing: Within 180 days of the end of each year.  
- Federal government: Fiscal financing sources: Detailed quarterly financing plan for the coming 12 months including projections for domestic public securities (issuance and maturities), external financing, SBP profits, short-term borrowing, other financing schemes, and borrowing from the SBP.; Frequency: Monthly; Timing: One month in advance.  
- Federal government: Stock of government borrowing from the SBP; Frequency: Quarterly; Timing: Within the first 5 days of each quarter.

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

### Federal Board of Revenue (FBR) reporting (selected items)
- Revenue collection: Total revenue collected separately by the tax administration and customs administration, including revenue by individual tax, and social contributions.; Frequency: Monthly; Timing: Within 7 days of the end of each month.  
- Tax arrears: By category; Frequency: Monthly; Timing: Within seven days of each month.  
- Tax arrears: By type of tax; Frequency: Monthly; Timing: Within 7 days of the end of each month.  
- GST refund claims in arrears: For the 30 largest debtors; Frequency: Monthly; Timing: Within 7 days of the end of each month.  
- Automated GST refunds: Detailed data, by type of tax, of outstanding tax credits for all types of tax revenues; Frequency: Quarterly; Timing: Within 7 days of the end of each month.  
- Automated GST refunds: Number of refunds that were processed automatically (share of total refunds); total value of automated and automatic refunds and offsets; average waiting time (days) to receive refund; Frequency: Quarterly; Timing: Within 7 days of the end of each month.  
- Large taxpayers: Data on the number of taxpayers and amount of taxes managed by the large tax payer units (LTUs); Frequency: Quarterly; Timing: Within 7 days of the end of each month.  
- Import data: Total value of recorded imports; Total value of duty-paid recorded imports; Number of total transactions involving recorded imports; Number of total transactions involving nonduty free recorded imports; Frequency: Quarterly; Timing: Within 30 days of the end of each quarter.  
- Audits: Percentage of selected companies and identified revenue from audits; Frequency: Quarterly; Timing: Within 45 days of the end of each month (monthly data provided on a quarterly basis).

### Ministry of Water and Power reporting (selected items)
- Key Power Sector Statistics (Please see the attached template); Frequency: Monthly.  
- Cumulative Monthly Subsidy Position (Rs. Billion).  
- PEPCO Month End Payables and Receivables Positions And Aging Schedule, Rs. Billion.  
- Receivables Positions - Total and DISCO-wise Break-up.  
- CPPA/PEPCO Month-wise Consolidated Cash Flow AT&C Statistics; Frequency: Monthly.  
- TDS Claims by DISCOs and Total Inter Corporate Circular Debt Sheet Prepared by Ministry of Finance.  
- DISCOs Consolidated Income Statement; Net Electrical Output & Power Purchase Price by Source, GWh; Generation, Demand and Shortfall for FY10 to date; Net Electrical Output (MkWh) Plant and Fuel-wise Detail.  
- Working Capital Loans For each loan type; Frequency: Quarterly; Timing: Within 30 days.  
- Quantitative target on performance of DISCOs: Quarterly quantitative targets for each DISCO for technical and distribution losses, collection form current consumers and recoveries of arrears.; Frequency: Quarterly; Timing: Within 30 days from the end of the quarter.  
- Domestic expenditure arrears: Energy arrears; Frequency: Quarterly; Timing: Within 45 days of the end of each month for government arrears.  
- Determined and Notified Tariff’s for each User and User Group (Please see template); Frequency: Annual; Timing: Within 30 days of determination and notification.

### Ministry of Petroleum and Natural Resources reporting
- Gas supply; Gas prices; Frequency: Quarterly on monthly frequency; Timing: Within 30 days from the end of the quarter.  
- UFG losses; Frequency: Quarterly; Timing: Within 30 days from the end of the quarter.

### BISP (Benazir Income Support Program)
- Targeted cash transfers: Coverage (number of beneficiaries paid) and payment by conditional and unconditional transfers.; Frequency: Quarterly; Timing: Within 30 days from the end of the quarter.

### Additional MOF reporting (state-owned enterprises)
- Financial statements and operational indicators for Pakistan Railways, Pakistan Steel Mills and Pakistan International Airline; Frequency: Quarterly; Timing: Within 30 days from the end of the quarter.

### Table excerpts — exchange rates and projected disbursements (selected exact values preserved)
- Table 1. Exchange Rates of the SBP (as of June 28, 2013 in U.S. dollars per currency) — Currency / Rupee per Currency / Dollars per Currency:  
  - EUR 130.18 1.31  
  - JPY 1.01 0.01  
  - CNY 16.24 0.16  
  - GBP 151.80 1.52  
  - AUD 92.11 0.92  
  - CAD 95.04 0.95  
  - THB 3.21 0.03  
  - MYR 31.54 0.32  
  - SGD 78.77 0.79  
  - INR 1.68 0.02
- Table 2. Projected Disbursements to Pakistan (In millions of U.S. dollars) — selected rows and columns preserved in table form in the source (values listed verbatim in the source):  
  - Multilateral and bilateral disbursement: 2,943 1,270 1,098 1,002 1,970 990 745 1,830 1,228 1,669  
  - of which: in cash 2/ 2,608 407 543 764 1,810 548 520 1,457 829 1,226  
  - International debt issuance: 2,000 0 1,000 0 0 0 0 5 0 0 500  
  - Coalition Support Fund: 375 735 0 71 70 240 337 175 175 175  
  - Other 1/: 0 0 0 0 764 0 0 0 0 0  
  - Gross Inflows: 5,318 2,005 2,098 1,719 2,734 1,230 1,082 2,505 1,403 2,344  
  - of which: in cash: 4,983 1,142 1,543 1,481 2,574 788 857 2,132 1,004 1,901  
  - Debt service: 943 989 1,110 1,842 1,422 1,046 1,262 1,095 1,913 1,387  
  - Memorandum items: Gross International Reserves: 9,096 8,943 10,514 11,615 13,534 14,296 13,917 15,574 15,547 17,131  
  - Program Net International Reserves: 1,800 3,000 3,500 5,000 7,300 8,300 8,300 9,300 9,400 10,000  
  - Notes in table: 1/ Includes privatization and 3G licenses. 2/ Numbers need to be confirmed with the MoF. 3/ As of February 9.

### Table excerpts — external inflows to the general government (selected exact values)
- Table 3. External Inflows to the General Government (In millions of U. S. dollars) — selected series preserved verbatim:  
  - Non Tax revenue: 322 353 375 735 071 703 371 751 751 75  
  - Of which: Coalition Support Fund: 322 353 375 735 071 703 371 751 751 75  
  - 3G Licences: 0 0 0 0 0 0 0 0 0 0 0  
  - Grants: 100 153 815 114 734 614 819 810 920 113 317 6  
  - External interest payments: 202 155 215 174 289 166 310 274 261 259 288  
  - Net external debt financing: 50 -115 350 127 312 09 -561 147 301 346 -861 232  
  - Disbursements: 645 760 471 387 118 458 512 200 791 189 313 952 245  
  - of which budgetary support: 309 285 207 014 235 471 086 411 073 548 701  
  - Amortization: 594 875 121 259 863 690 710 537 615 471 482 101 2  
  - Privatizations: 0 0 0 0 500 0 764 0 0 0 0  
  - Memorandum item Program financing: 409 182 322 261 613 696 952 048 150 127 468 1877

### Government sector (selected balances and stocks)
- Table 4. Government Sector (Budgetary Support) (End-of-period stocks/PRs. Millions) — selected items and values preserved verbatim:  
  - Central Government: June 30, 2013: 5,561,994; June 30, 2014: 6,059,496; June 30, 2015: 7,010,575.  
  - Scheduled Banks: June 30, 2013: 3,320,870; June 30, 2014: 3,491,821; June 30, 2015: 4,905,118.  
  - Government Securities: June 30, 2013: 1,117,115; June 30, 2014: 2,413,134; June 30, 2015: 3,295,052.  
  - Treasury Bills: June 30, 2013: 2,611,512; June 30, 2014: 1,550,476; June 30, 2015: 2,164,055.  
  - Government Deposits: -407,757 -471,789 -553,989.  
  - State Bank: 2,241,124 2,567,674 2,105,457.  
  - Treasury Bills (SBP): 2,275,183 2,852,274 2,281,365.  
  - of which: MTBs created for replenishment of cash balances: 2,274,675 2,851,765 2,280,856.  
  - Debtor Balances (Excl. Zakat Fund) Government Deposits: -96,260 -383,571 -234,504.  
  - Adjustment for use of Privatization Proceeds for Debt Retirement: 5,749 5,749 5,749.  
  - Provincial Governments: -315,607 -510,138 -600,192.  
  - Net Govt. Budgetary Borrowings from the Banking system: 5,246,387 5,549,357 6,410,383.  
  - Net Govt. Borrowings (Cash basis) From Banking System: 5,124,762 5,448,425 6,336,750.  
  - From SBP: 2,167,951 2,327,725 1,893,499.

### Statement by authorities — program performance (key findings and actions)
- Authorities broadly agree with staff assessment and policy recommendations.  
- Program implementation has been strong overall.  
- Two end-June performance criteria and three indicative targets were missed; deviations mainly temporary with minimal impact on overall performance.  
- The PC on net international reserves was met with a wide margin and the PC on NDA with a narrower margin; the ceiling on foreign currency swaps/forward position was observed.  
- The PC on fiscal deficit was exceeded by the equivalent of 0.4 percent of GDP and the PC on government borrowing from the central bank by 0.1 percent of GDP, due to expenditure overruns by some provinces.  
- Authorities instituted a mechanism in consultation with the provinces to pre-empt similar slippages (¶ 12 MEFP) and agreement was reached with provincial governments to increase their fiscal surpluses.  
- Shortfall in revenue leading to nonobservance of the indicative target was due to lower commodity prices and inflation and was offset by cuts in nonpriority spending leaving the Federal government balance as planned.  
- To strengthen revenue, the authorities increased the GST on petroleum products in August 2015 and stand ready to take additional measures, including bringing forward plans to eliminate tax concessions and exemptions slated for FY2016/17.  
- Nonobservance of the indicative floor on BISP spending was technical in nature since it resulted from efficiency gains; the number of beneficiaries target was achieved.  
- Missed indicative target on flow of power sector arrears by PRs 15 billion (0.05 percent of GDP) was due to a temporary delay in implementation of some plan elements that have since been addressed; authorities are on course to achieve the end-September target.  
- Structural reform implementation was better than programmed: operationalization of the improved interest rate corridor of the central bank in May instead of end-September 2015; passage of the Credit Bureau Act by parliament in August instead of end-November 2015.

### Recent economic developments and outlook (key indicators and projections)
- Growth reached 4.2 percent in FY2014/15.  
- Growth expected to increase to 4.5 percent in FY2015/16.  
- Inflation was reduced by more than one half to low single digit level.  
- Current account deficit declined to less than 1 percent of GDP.  
- Reserve coverage increased from 2.2 to 3.3 months of imports.  
- Public debt to GDP has started to decline after increasing over the past several years.  
- Outlook: growth expected to strengthen further, buoyed by improvement in energy supply, investment in the China-Pakistan Economic Corridor and improved business climate.  
- Inflation could increase temporarily once global commodity prices stabilize but is expected to remain under control through continuing prudent monetary policy.  
- Current account and reserve position should improve further, supported by continuous strong growth of remittances.

### Fiscal policy (key targets, actions and measures)
- Authorities committed to reducing the fiscal deficit to 3.5 percent of GDP by the end of the program in FY2016/17.  
- Fiscal deficit was 5.4 percent of GDP in FY2014/15, compared to 8.3 percent in FY2012/13.  
- Deficit projected to decline to 4.3 percent of GDP in FY2015/16.  
- Stock of GST refund claims is being reduced with the objective of bringing it down to an acceptable level.  
- BISP: after reaching goal of 5 million in FY2014/15, beneficiaries expected to increase to 5.3 million this year. BISP planning to update its National Socio Economic Registry; BISP's annual disbursements about $ 1 billion.  
- Authorities agree on need to strengthen tax revenue to reach 14.5 percent of GDP in FY2019/20 from current 11 percent.  
- Steps taken include elimination of tax exemptions of PRs 224 billion and withdrawing FBR’s power to issue Statutory Regulatory Orders (SROs) to grant tax exemption, allowing it only in exceptional, specified circumstances with approval of the Economic Coordination Committee (ECC).  
- New measures include integrating the National Tax Number (NTN) with Computerized National Identity Card (CNIC) (SB); adoption of a new audit policy towards risk-based audit (SB); legislation against benami transactions (new SB).  
- Technical assistance sought from the Fund to develop a PPP framework at the federal level.  
- Authorities on track to appoint risk management staff and begin publishing quarterly debt management risk reports by end-October 2015 (SB) and to publish an updated MTDS by end-January 2016.  
- Plan to introduce gender-responsive budgeting in FY2016/17.

### Monetary and exchange rate policies
- Monetary and exchange rate policies geared towards maintaining price stability and building foreign exchange reserves.  
- SBP will continue to build foreign exchange reserves; reserves are now equivalent to 63 percent of Fund’s ARA metric and are on course to reach 78 percent by end of FY2015/16.  
- SBP will continue to set the policy rate in a forward-looking fashion to maintain positive real interest rates and anchor inflation expectations.  
- Monetary policy effectiveness strengthened by the new interest rate corridor which has improved liquidity management and transmission.  
- Amendments to the SBP Act passed by the National Assembly in August 2015 and likely to be enacted after Senate approval by end-September 2015 (SB).  
- SBP published its strategic plan for 2016-20 in August 2015 to strengthen monetary policy framework, financial stability regime, the banking system, and SBP’s organizational efficiency.

### Financial sector developments and policies (key indicators)
- Banking sector: Capital Adequacy Ratio (CAR) rose to 17.2 percent in FY2014/15 against 15 percent last fiscal year and a statutory requirement of 10 percent.  
- All banks are now CAR-compliant after the last noncompliant bank met recapitalization condition through rights issue in July 2015.  
- Plan devised to bring five small banks which do not meet minimum paid-up capital into regulatory compliance.  
- Authorities phasing in strengthened capital adequacy by transitioning to Basel III standards.  
- Non-Performing Loans (NPLs) ratio improved marginally in June 2015 to 12.4 percent.

*Source: _cr15278 - 28.      Performance under the program will be monitored from data supplied to the IMF by the (IMF PDF content unit).*

### 12.8 percent in March 2015 and provisioning has increased. To improve NPL recovery,

### _cr15278 - 12.8 percent in March 2015 and provisioning has increased. To improve NPL recovery,

### Financial sector soundness and legal reforms
- Nonperforming loans at 12.8 percent in March 2015 and provisioning has increased.
- To improve NPL recovery, amendments to the foreclosure clauses in the Financial Institutions (Recovery of Finance) Ordinance 2001 are under enactment by the parliament.
- After parliamentary approval of the Securities Act in February 2015 and Credit Bureau Act in August 2015, the authorities are focusing on passage of:
  - the Deposit Protection Fund bill
  - the Futures Trading bill
  - the Corporate Restructuring Companies (CRC) Bill
  - amendments to the Securities and Exchange Commission of Pakistan (SECP) Act
- Continued efforts to strengthen the AML/CFT framework.

### Structural reforms, privatization, and state-owned enterprises
- A rigorous reform, restructuring and privatization plan was embarked upon under this program to bring greater efficiency and improved service delivery to public sector enterprises.
- Achievements to date:
  - Divested shares in three banks and a petroleum company through capital market transactions.
  - Completed strategic sale of a power construction company.
- Planned near-term transactions (to reach fruition in 2016):
  - Strategic and asset sale of three power distribution and three power generation companies
  - Pakistan Steel Mills sale
  - Private sector participation in Pakistan International Airlines (PIA)
  - Shares sale of the State Life Insurance Corp. (SLIC) and two petroleum companies

### Power sector reform, arrears, and subsidies
- Authorities, with development partners, developed a plan to reduce accumulation of arrears and buildup of circular debt by improving collection and reducing operating costs, losses and price distortions in the tariff structure.
- New structural benchmarks agreed:
  - Enforcing performance through loss reduction, collection and recovery targets consistent with the arrears reduction plan for each distribution company.
  - Completing the bidding process of one of the distribution companies (FESCO) by end-June 2016.
- Electricity subsidies and fiscal adjustments:
  - Electricity subsidies reduced to 0.8 percent of GDP in FY2014/15.
  - Plan to further reduce electricity subsidies to 0.3 percent of GDP in FY2015/16 while allocating an additional 0.1 percent of GDP for arrears clearance.
- Energy pricing:
  - Authorities increased the weighted gas prices by around 14 percent in August 2015, recuperating losses of the gas sector.
- Policy objective: bridge demand/supply gap and achieve full cost recovery from consumers while continuing rationalization of untargeted energy subsidies.

### Business climate and financial inclusion
- To improve the business climate, authorities identified 39 processes in the sales and income tax filing that required elimination or streamlining.
- Launched a National Financial Inclusion Strategy (NFIS) in May 2015 to improve access to finance for the poor, women and marginalized segments of society.
- The Credit Bureau Act will facilitate credit information critical to achieving NFIS objectives.

### Conclusion and program stance
- Authorities reaffirm commitment to maintaining strong momentum in implementing the economic reform program.
- Acknowledgement that more needs to be done to consolidate recent gains in macroeconomic stability and secure a strong and sustainable growth path.
- Authorities value the support of the Fund and development partners and reiterate commitment to taking corrective measures as needed to achieve program objectives.
- Authorities request waivers of nonobservance of missed PCs and completion of this Review.

*Source: _cr15278 - 12.8 percent in March 2015 and provisioning has increased. To improve NPL recovery,*

---


_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2015/_cr15278.pdf_