## _cr1601 - 5.4 percent of GDP, although part of this adjustment reflected clearance of quasi-fiscal ## Source details **Canonical URL:** [_cr1601 - 5.4 percent of GDP, although part of this adjustment reflected clearance of quasi-fiscal](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2016/_cr1601.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2016/_cr1601.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2016/_cr1601.pdf.json) --- ### Recent macroeconomic developments and fiscal adjustment - Fiscal consolidation reduced the budget deficit to 5.4 percent of GDP, although part of this adjustment reflected clearance of quasi-fiscal liabilities in the energy sector in 2013. - Monetary and financial sector policies remained prudent; the banking system remained sound. - Inflation declined significantly, helped in part by low international commodity prices. - Program actions and outcomes: - The Executive Board completed the ninth review under the Extended Fund Facility and approved immediate disbursement equivalent to SDR 360 million (about US$498.1 million), bringing total disbursements to SDR 3.6 billion (about US$ 4.98 billion). - The three-year extended arrangement approved on September 4, 2013 was in the amount of SDR 4.393 billion (about U$S6.64 billion at the time of approval, or 425 percent of Pakistan’s quota at the IMF). ### External position and reserve accumulation - External current account deficit narrowed to one percent of GDP in FY2014/15, helped by low oil prices and strong remittances. - Foreign exchange reserves of the SBP rebuilt from 1.5 months of imports in FY2012/13 to 3.8 months of imports in September 2015. - The SBP continued spot purchases of foreign exchange, netting US$750 million in Q1 FY2015/16 to raise reserve coverage. - Gross reserves (millions of U.S. dollars) series: 14,784; 10,799; 6,008; 9,096; 13,534; 17,131; 17,666. - Gross reserves (in months of next year's imports): 3.6, 2.7, 1.5, 2.2, 3.4, 4.0, 4.3. - Program NIR and targets (millions of U.S. dollars): - end-March (Projection) 5,354; end-June (Target) 8,300; end-September (Adj. Target) 6,885; end-December (Actual) 6,955; end-June (Target FY2015/16) 9,300; end-June (Performance Criteria) 10,000. ### Structural impediments and sectoral issues - Long-standing structural impediments and a difficult security setting remain key obstacles to growth and investment. - Pervasive tax evasion, prevalent tax exemptions, and loss-making state-owned enterprises constrain fiscal space for public investment and social spending. - Reliance on domestic financing risks reducing access to credit and investment by the private sector. - The energy sector still accumulates payment arrears and is unable to meet growing demand despite recent improvements: - Circular debt accumulated to a stock of about 2 percent of GDP (2014/15). - Stock of power sector payables = PRs 326 billion (end-September 2015). - Stock of PHCL = PRs 335 billion (end-September 2015). ### Reform agenda, structural benchmarks, and priorities - Structural reforms in various stages of preparation or implementation include: - Energy sector reforms; privatization/restructuring of public enterprises; tax administration reforms; monetary and financial sector policy improvements. - Specific reform priorities emphasized: - Continued reserve accumulation and fiscal consolidation. - Widening the tax net to enable higher infrastructure investment and social assistance. - Fixing the energy sector; restructuring or privatizing loss-making public enterprises. - Improving the business climate and trade integration. - Strengthening financial sector frameworks, corporate restructuring, insolvency, and collateral frameworks. - Strengthening the regime against money laundering and the financing of terrorism. - Promoting gender equality and expanding targeted social protection; increasing female labor force participation. - Structural benchmarks, prior actions, and status (selection): - Bring the stock of NDA to or below PRs 2,652 billion by end-November 2015 — Met. - Enact amendments to the SBP law — Met (enacted in November 2015). - Enact the Credit Bureau Act — Met in August, 2015. - Adopt amendments to AMLA to include serious tax crimes — end-May 2016 — Not Met by end-November 2015 (rescheduled). - Enact the Deposit Protection Fund Act — end-February 2016 — pending. ### Macroeconomic outlook and projections - Short- and medium-term projections and targets: - Real GDP at factor cost (annual growth, percent): 2010/11: 3.6; 2011/12: 3.8; 2012/13: 3.7; 2013/14: 4.0; 2014/15: 4.2; 2015/16 (Proj.): 4.5. - Medium term: growth expected to reach about 5.5 percent; with decisive policy action medium-term growth could reach 6½ percent (Box 4). - Consumer prices (period average, percent): 2010/11: 13.7; 2011/12: 11.0; 2012/13: 7.4; 2013/14: 8.6; 2014/15: 4.5; 2015/16 (Proj.): 4.7. - Inflation expected to gradually rebound to the SBP’s target of mid-single digits and policy to target clearly positive real interest rates. - Current account balance (percent of GDP): 2010/11: 0.1; 2011/12: -2.1; 2012/13: -1.1; 2013/14: -1.3; 2014/15: -1.0; 2015/16 (Proj.): -0.9. ### Fiscal consolidation, revenue mobilization, and public debt targets - Fiscal consolidation path and targets: - Budget deficit (excluding grants) target of 3½ percent of GDP in FY2016/17; budget deficit target of 2½ percent of GDP over the medium term. - Authorities prefer somewhat more gradual pace but commit to revenue mobilization. - Revenue mobilization objectives: - Raise the tax-to-GDP ratio to 14.5 percent over the medium term. - Tax revenue increased by one percent of GDP since FY2012/13 to 11 percent of GDP in FY2014/15. - Pakistan’s estimated revenue potential is over 22 percent of GDP. - Key tax reform elements: - Remove concessions and exemptions (GST, customs duties); cost reduced from 1.9 percent of GDP in 2013/14 to 1.5 percent in 2014/15. - Reduce GST refund backlog from PRs 87 billion in September 2015 to about PRs 20 billion (three-month flow). - Number of active PIT filers: around 970,000 as of end-November; estimated potential PIT taxpayers: 5.7 million. - Number of CIT filers is less than one percent of all commercial and industrial electricity users. - Public debt and consolidation outcomes: - Total general government debt (percent of GDP): 55.3, 60.5, 62.9, 63.7, 63.2, 62.4, 63.2 (2010/11–2015/16 series). - Public debt projected to decline from 64.9 percent of GDP in 2015 to 55.2 percent by 2021 (Annex I baseline). - Main fiscal consolidation achievements: budget deficit declined from 8.9 percent of GDP in FY2011/12 to 5.4 percent of GDP in FY2014/15. ### Monetary policy, SBP independence, and inflation targeting - Monetary stance and measures: - A cautious monetary policy stance warranted amid uncertain global financial conditions and expected rebound in inflation. - SBP pursued an accommodative stance following declining inflation; policy to target positive real interest rates. - SBP lowered the policy rate (repo and reverse repo) by 50 bps in September 2015; several interest rate cuts totaling 400 bps since November 2014 noted in context. - Institutional reforms: - Establishment of an independent monetary policy committee (MPC) enacted in November 2015. - Medium-term plan: move toward flexible inflation targeting conditional on pre-conditions (strengthened interest rate corridor; fiscal consolidation; independent MPC; forecasting capacity; communication strategy). - Staff urged implementing remaining recommendations of the 2013 Safeguards Assessment to strengthen central bank independence and reduce fiscal dominance. ### Financial sector soundness, risks, and policy recommendations - Banking system indicators and risks: - Capital adequacy ratio (CAR) increased to 18.2 percent in Q1, 2015/16 (from 15.5 percent last fiscal year). - Nonperforming loans (NPLs) remained high at 12.5 percent in September 2015. - Banking system profitability increased, although supported by higher government borrowing which exceeds credit to the private sector. - Real private sector credit growth subdued at 2.2 percent y-o-y in July-September 2015; private sector credit growth in September 2015 recorded 3.6 percent y-o-y (monetary aggregates section). - Domestic financing accounted for more than 60 percent of banking credit as of end-FY2014/15. - SBP reserves were US$15.2 billion at end-September 2015. - Financial stability recommendations: - Limit crowding-out of private credit by reducing reliance on the banking system for government financing. - Maintain adequate liquidity buffers and closely monitor bank exposures to the sovereign and energy sector entities. - Bolster regulatory and supervisory frameworks; institute deposit insurance scheme; improve access to finance. - Strengthen AML/CFT regime, widen coverage to include proceeds of tax crimes, and bolster Financial Monitoring Unit’s analytical capacity. - Continue phased implementation of Basel III capital and liquidity standards; DPF Act to be enacted by end-February 2016 and DPF operational by March 2016. ### Energy sector reforms, performance, and arrears management - Energy sector outcomes: - Untargeted energy subsidies reduced from 2.3 percent of GDP in FY2011/12 to planned 0.4 percent of GDP in FY2015/16 (progress noted; elsewhere target of 0.3 percent of GDP for FY2015/16 stated). - Utilization of installed capacity improved from less than 70 percent to about 80 percent; industry outages reduced from 8–11 hours to near zero. - Authorities cleared a large part of circular debt from the budget and moved PRs 335 billion to the books of Power Holding Company Ltd. (PHCL); re-accumulation of arrears with PHCL amounted to about 2 percent of GDP in 2014/15. - Planned investments, including CPEC-related, envisage raising installed capacity by GW 9 in the next five years; FDI under CPEC envisages 8.3 GW generation capacity through 2017–2021. - Tariffs and arrears: - Current notified weighted average electricity tariff = PRs 11.45/kWh overall; components: 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. - Payables in the power sector increased by PRs 13 billion in Q1 FY2015/16 and stood at PRs 326 billion end-September 2015. - Flow and stock targets: 2015/16 Q1 Target = 32; Actual Q1 flow = 13; 2015/16 Total (flow) = 209; 2014/15 Total (flow) = 126; Total stock target 2015/16 = 297; Actual stock end-September = 326. - Policy measures: - Enforce quarterly loss-reduction, collection, and recovery targets for each DISCO; performance contracts signed with nine DISCOs. - Introduce multi-year tariffs; delays in end-November 2015 SB on multi-year tariffs noted and rescheduled SBs proposed. - Privatization of DISCOs is part of reform agenda; FESCO, IESCO, LESCO bidding and privatization timetables specified. ### Privatization and PSE restructuring - Privatization program scope and status: - Cabinet Committee on Privatization approved list of 31 PSEs and added 8 more; plans to sequence capital market and pre-privatization restructuring. - Completed minority stake sales: UBL and PPL (June 2014), ABL (December 2014), HBL (April 2015). - PIA: Presidential Ordinance amended PIA Act; solicit expressions of interest by end-December 2015 (SB). - Pakistan Steel Mills (PSM): privatization put on hold; offer made to provincial government—if declined, privatization could be completed by end-September 2016. - Timelines (selected): - Minority share sales finalization target by end-June 2016. - FESCO bidding completion by end-June 2016; transaction finalization by end-September 2016. - NPGCL/JPCL/LPGCL/CPGCL bidding completion by end-September 2016; finalization by end-December 2016. - KAPCO bidding completion by end-June 2016; finalization by end-September 2016. ### Debt sustainability, vulnerabilities, and stress tests (Annex I) - Public debt outlook and baseline: - Public debt projected to decline from 64.9 percent of GDP in 2015 to 55.2 percent by 2021 under the baseline. - Gross external debt reached 24.4 percent of GDP in 2015 and projected to modestly decline. - Gross external financing needs expected to peak at 2.6 percent of GDP. - Debt dynamics and vulnerabilities: - Debt dynamics improved after fiscal consolidation that lowered the budget deficit from 8.9 percent of GDP in FY2011/12 to 5.4 percent in FY2014/15. - Short-term domestic debt share close to 50 percent (down from 64 percent in 2013). - Stress tests (primary balance, growth, interest rate, exchange rate, combined shocks) show external debt-to-GDP would not exceed 37 percent under scenarios examined, though debt dynamics remain sensitive to primary balance slippages and growth shocks. - Key DSA projections (baseline series excerpts): - Baseline real GDP growth projections (2016–2021): 4.2, 4.5, 4.7, 5.0, 5.2, 5.5 (in percent). - Baseline primary balance (2016–2021): -0.5, 0.1, 1.3, 1.5, 1.5, 1.4 (percent of GDP). - Effective interest rate series examples: 8.0, 7.4, 8.0, 7.8, 7.8, 7.4. ### Program implementation, conditionality, and mission findings - Most end-September 2015 Performance Criteria (PCs) and indicative targets were met. - Missed targets included: - PCs on net domestic assets (NDA) of the SBP (missed by PRs 172 billion / 4.9 percent of reserve money for end-September NDA in one statement; other sections cite PRs 181 billion). - PC on the general government deficit (missed by PRs 23 billion, close to 0.1 percent of GDP). - Indicative target on federal tax revenue (missed by PRs 40 billion / 0.15 percent of GDP). - Corrective measures taken: - Authorities put in place additional revenue measures amounting to PRs 40 billion (raising excise duty on cigarettes and imposing regulatory and additional customs duties). - Cut current and capital expenditures by 0.1 percent of GDP; absorb agricultural support package amounting to 0.1 percent of GDP within recurrent spending envelope. - Reclassification of some “nonplan loans” resulting in additional budgetary spending of 0.1 percent of GDP reallocated from existing capital expenditure plans. - End-December PC for NDA proposed for modification; corrective measures taken to meet revised target. - Staff recommendations and approvals: - Staff supported completion of the ninth review, waivers for nonobservance of end-September PCs on budget deficit and NDA, and modification of end-December 2015 PC on NDA. - Staff recommended establishment of end-March 2015 PCs, setting of seven new structural benchmarks, and revisions to SB timelines. ### Financial soundness indicators (selected) - Banking sector: - CAR increased to 18.2 percent in Q1, 2015/16. - NPLs to gross loans: series include 14.5, 14.7, 14.8, 14.3, 13.0, 13.4, 12.8, 13.0, 12.3, 12.8, 12.4, 12.5 (across reported dates). - Return on assets (after tax): around 1.4 to 1.7 (series). - Liquid assets to total assets: around 47.4 to 53.8 (series). - Monetary aggregates and credit: - Broad money (percent change series): 15.9, 14.1, 15.9, 12.5, 13.2, 12.4, 12.0. - Private credit (percent change series): 4.0, 7.5, -0.6, 11.0, 5.6, 9.8, 10.7. - Real private sector credit growth remained subdued at 2.2 percent y-o-y in July-September 2015; private sector credit growth 3.6 percent y-o-y in September 2015 (different series cited in text). - Key program quantitative targets (selected stock/flow figures preserved): - Ceiling on NDA of the SBP (PRs, stock): end-March (Projection) 2,440; end-June (Target) 2,350; end-September (Adj. Target) 2,480; end-December (Actual) 2,661; end-June (Target FY2015/16) 2,350; end-June (Performance Criteria) 2,650. - Ceiling on overall budget deficit (cumulative, excluding grants, PRs billions): end-March (Projection) 1,489; end-June (Target) 306; end-September (Adj. Target) 306; end-December (Actual) 329; end-June (Target FY2015/16) 625; end-June (Performance Criteria) 1,292. - Ceiling on power sector payment arrears (flow, PRs billions): end-March (Projection) 57; end-June (Target) 36; end-September (Adj. Target) 36; end-December (Actual) 13; FY2015/16 targets: 27 (end-June), 27 (end-September), 22 (end-December), 29 (end-June PC). ### Data, monitoring, and reporting - Program monitoring requires frequent data transmission from SBP, Ministry of Finance, Ministry of Water and Power, PBS, FBR, and other agencies with specified frequencies and timing (daily to quarterly depending on series). - Definitions and technical specifics preserved in TMU: - Net international reserves (NIR) definition; SBP aggregate net position in foreign exchange derivatives at end-June 2015 = –US$1.7 billion. - Reserve money (RM), NDA, and net government borrowing definitions and calculation conventions. - Adjustors for NIR floor, NDA ceiling, and consolidated budget ceilings specified in TMU. ### Executive Board assessment and policy prescriptions (summary) - Directors welcomed improvements in economic activity and the fiscal and external positions due to low oil prices and strong remittances. - Emphasized need to boost potential growth and enhance resilience and competitiveness through: - Sustained fiscal consolidation and swift execution of the economic reform program. - Further build-up of international reserves. - Revenue mobilization via base-broadening, streamlining concessions and exemptions, improving tax compliance, and enhancing coordination with provincial tax authorities. - Strengthening public debt and financial management frameworks; reduce energy subsidies; restructure or privatize loss-making public enterprises. - Monetary policy focused on price stability, positive real interest rates, improved transmission, and preparation for inflation targeting. - Financial sector: bolster regulatory and supervisory frameworks, set up deposit insurance, improve access to finance, and strengthen AML/CFT. - Structural reforms: energy sector reform, privatization, business climate improvement, trade integration, and greater exchange rate flexibility to absorb shocks and support exports. *International Monetary Fund staff report and Executive Board materials as provided in the source content.* ### 5.4 percent of GDP, although part of this adjustment reflected clearance of quasi-fiscal ### _cr1601 - 5.4 percent of GDP, although part of this adjustment reflected clearance of quasi-fiscal ### Recent macroeconomic developments and fiscal adjustment - Fiscal consolidation reduced the budget deficit to 5.4 percent of GDP, although part of this adjustment reflected clearance of quasi-fiscal liabilities in the energy sector in 2013. - Monetary and financial sector policies have remained prudent; the banking system remains sound. - Inflation has declined significantly, helped in part by low international commodity prices. ### External position and external-sector developments - External current account deficit narrowed to one percent of GDP in FY2014/15, helped by low oil prices and strong remittances. - Foreign exchange reserves of the SBP rebuilt from 1.5 months of imports in FY2012/13 to 3.8 months of imports in September 2015. - Foreign direct investment (FDI) fell by a half in FY2014/15, albeit with some recovery since, and exports have declined. - The real effective exchange rate appreciated 17 percent over the past two years, undermining competitiveness. - Competitiveness also hampered by security issues and a business climate that lags regional peers. ### Structural impediments and sectoral issues - Long-standing structural impediments and a difficult security setting remain key obstacles to growth and investment. - Pervasive tax evasion, prevalent tax exemptions, and loss-making state-owned enterprises constrain fiscal space for public investment and social spending. - Reliance on domestic financing risks reducing access to credit and investment by the private sector. - The energy sector still accumulates payment arrears and is unable to meet growing demand despite recent improvements. ### Reform agenda and ongoing measures - Structural reforms in various stages of preparation or implementation include: - Energy sector reforms. - Privatization/restructuring of public enterprises. - Tax administration reforms. - Monetary and financial sector policy improvements. - Specific reform priorities emphasized: - Continued reserve accumulation and fiscal consolidation. - Widening the tax net to enable higher infrastructure investment and social assistance. - Fixing the energy sector, restructuring or privatizing loss-making public enterprises. - Improving the business climate and trade integration. - Strengthening financial sector frameworks, corporate restructuring, insolvency, and collateral frameworks. - Strengthening the regime against money laundering and the financing of terrorism. - Promoting gender equality and expanding targeted social protection. - Increasing female labor force participation. ### Macroeconomic outlook and projections - Pakistan’s medium-term outlook is favorable, contingent on sustained implementation of key reforms. - In the medium term: - Growth is expected to reach about 5.5 percent. - Inflation is expected to gradually rebound to the SBP’s target of mid-single digits. ### Executive Board assessment and policy prescriptions - Directors welcomed improvements in economic activity and the fiscal and external positions due to low oil prices and strong remittances. - Directors emphasized need to boost potential growth and enhance resilience and competitiveness through: - Sustained fiscal consolidation. - Swift execution of the economic reform program. - Further build-up of international reserves. - Revenue mobilization recommendations: - Base-broadening. - Streamlining concessions and exemptions. - Improving tax compliance. - Enhancing coordination with provincial tax authorities. - Public finance recommendations: - Continue strengthening frameworks for public debt and financial management. - Further reduce energy subsidies. - Restructure or privatize loss-making public enterprises. - Monetary policy recommendations: - Remain prudent and focused on price stability. - Target positive real interest rates and keep inflation expectations well anchored. - Enhance monetary policy transmission and prepare for a shift toward inflation targeting over the medium term as circumstances permit. - Implement remaining recommendations of the 2013 safeguards assessment to enhance central bank independence and reduce fiscal dominance. - Financial sector recommendations: - Bolster regulatory and supervisory frameworks. - Set up a deposit insurance scheme. - Improve access to finance. - Strengthen the framework against money laundering and the financing of terrorism, including widening coverage of tax crimes. - Structural reform emphasis: - Energy sector reform, privatization, business climate improvement, and trade integration. - Greater exchange rate flexibility to help absorb exogenous shocks and complement export strategies. ### Key quantitative indicators and statistics (selected) - Population: 189.9 million (2014/15) - Per capita GDP: US$1,510 (2014/15) - Poverty rate: 12.7 percent (2010/11) - Main exports: Textiles ($13.5 billion, 2014/15) - Unemployment: 6.0 percent (2013/14) - Real GDP at factor cost (annual % change): 3.6, 3.8, 3.7, 4.0, 4.2, 4.5, 4.5 (for 2010/11–2015/16 series) - GDP deflator at factor cost (annual % change): 19.5, 5.7, 7.1, 6.9, 3.6, 4.7, 3.7 - Consumer prices (period average): 13.7, 11.0, 7.4, 8.6, 4.5, 4.7, 3.7 - Consumer prices (end of period): 13.3, 11.3, 5.9, 8.2, 3.2, 6.0, 4.5 - Gross saving (percent of GDP): 14.2, 13.0, 13.9, 13.7, 14.1, 14.8, 14.4 - Government balance (percent of GDP): -4.2, -5.3, -5.2, -1.4, -1.6, -0.4, -0.5 (government saving component of gross saving) - Gross capital formation (percent of GDP): 14.1, 15.1, 15.0, 15.0, 15.1, 15.3, 15.3 - Revenue and grants (percent of GDP): 12.6, 13.0, 13.5, 15.3, 14.5, 15.4, 15.5 - Expenditure (including statistical discrepancy) (percent of GDP): 19.6, 22.0, 21.9, 19.9, 19.2, 19.6, 19.6 - Budget balance (including grants) (percent of GDP): -6.7, -8.6, -8.4, -4.9, -5.3, -4.2, -4.2 - Primary balance (percent of GDP): -2.9, -4.2, -3.9, -0.3, -0.5, 0.1, 0.1 - Total general government debt (percent of GDP): 55.3, 60.5, 62.9, 63.7, 63.2, 62.4, 63.2 - Net foreign assets (annual changes in percent of initial stock of broad money): 4.1, -3.8, -3.4, 3.7, 2.2, 1.6, 1.9 - Broad money (percent change): 15.9, 14.1, 15.9, 12.5, 13.2, 12.4, 12.0 - Private credit (percent change): 4.0, 7.5, -0.6, 11.0, 5.6, 9.8, 10.7 - Merchandise exports, U.S. dollars (percentage change): 28.9, -2.6, 0.4, 1.1, -3.9, 0.7, -4.0 - Merchandise imports, U.S. dollars (percentage change): 14.9, 12.8, -0.6, 3.8, -0.9, -0.2, -1.9 - Current account balance (percent of GDP): 0.1, -2.1, -1.1, -1.3, -1.0, -0.5, -0.9 - External public and publicly guaranteed debt (percent of exports of goods and services): 153.4, 160.3, 144.6, 166.6, 164.5, 168.2, 188.7 - Debt service (percent of exports of goods and services): 13.4, 16.2, 21.6, 23.5, 21.9, 22.5, 24.9 - Gross reserves (millions of U.S. dollars): 14,784; 10,799; 6,008; 9,096; 13,534; 17,131; 17,666 - Gross reserves (in months of next year's imports of goods and services): 3.6, 2.7, 1.5, 2.2, 3.4, 4.0, 4.3 - Real effective exchange rate (annual average, percentage change): 6.1, 3.0, -1.3, 0.9, 10.9 - Terms of trade (percentage change): 7.3, -10.0, -1.9, 0.3, 5.1, 3.8, 14.5 - Real per capita GDP (percentage change): 1.5, 1.7, 1.6, 2.0, 2.2, 2.5, 2.5 - GDP at market prices (in billions of Pakistani rupees): 18,276; 20,047; 22,379; 25,068; 27,384; 30,170; 29,907 - Gross reserves of the SBP rebuilt from 1.5 months of imports in FY2012/13 to 3.8 months of imports in September 2015. - The Executive Board completed the ninth review under the Extended Fund Facility and approved immediate disbursement equivalent to SDR 360 million (about US$498.1 million), bringing total disbursements to SDR 3.6 billion (about US$ 4.98 billion). - The three-year extended arrangement approved on September 4, 2013 was in the amount of SDR 4.393 billion (about U$S6.64 billion at the time of approval, or 425 percent of Pakistan’s quota at the IMF). ### Program implementation, conditionality, and mission findings - Most end-September 2015 Performance Criteria (PCs) and indicative targets were met. - Missed targets included: - PCs on net domestic assets (NDA) of the State Bank of Pakistan (SBP). - PC on the general government deficit. - Indicative target on federal tax revenue. - Authorities put in place additional revenue measures to stay on course with fiscal targets. - The end-December PC for NDA is proposed for modification to ensure adequate reserve money growth; corrective measures were taken to meet the revised target. - Structural benchmarks (SBs): - Most SBs for this review were met. - The SB on AML Act amendments is proposed to be modified. - The missed end-November SB on multi-year power tariffs is proposed to be replaced by two new SBs to facilitate completion within the timeline of privatization. - Five new SBs proposed in the areas of tax administration, AML, energy sector and business climate reforms. ### Press release highlights (December 18, 2015) and Managing Director statement summary - The Executive Board completed the ninth review under the EFF for Pakistan on December 18, 2015. - Immediate disbursement equivalent to SDR 360 million (about US$498.1 million) approved. - Mr. Mitsuhiro Furusawa, Deputy Managing Director and Acting Chair, highlighted: - Robust economic growth and reduced near-term vulnerabilities. - Need for prudent macroeconomic policies and sustained reform implementation. - Authorities’ commitment to strengthen fiscal position and lower public debt; focus on revenue mobilization, broadening tax base, and improving tax collection and compliance. - Opportunity from low oil prices to strengthen external stability and accumulate reserves. - Establishment of an independent monetary policy committee as a major step. - Need to continue preparations for credit bureaus and a deposit insurance scheme and to strengthen corporate restructuring, insolvency, and collateral frameworks. - Continued momentum on structural reforms, including reducing arrears and increasing supply in the energy sector, restructuring and privatizing loss-making public enterprises, improving the business climate, strengthening social protection, and raising female labor force participation. *International Monetary Fund staff report and Executive Board materials as provided in the source content.* ### 8. Financial Soundness Indicators for the Banking System _______________________________________ 39 ### 8. Financial Soundness Indicators for the Banking System _______________________________________ 39 ### Summary of Financial Soundness Indicators - Banking system capital and profitability - Capital adequacy ratio (CAR) increased to 18.2 percent in Q1, 2015/16 (from 15.5 percent last fiscal year). - Banking system profitability increased, although this increase was on the back of higher government borrowing which exceeds credit to the private sector. - Liquidity and credit - Liquidity in the banking system has remained adequate. - Real private sector credit growth remained subdued at 2.2 percent y-o-y in July-September 2015. - Domestic financing accounted for more than 60 percent of banking credit as of end-FY2014/15. - System-level exposures and related figures cited in the broader context - Government borrowing from banks and from the SBP increased (charts referenced; no additional numeric values provided in the source text). - Banks' excess liquidity tracked via a 3-month moving average (chart referenced; no numeric values provided in the source text). ### Implications and Risks for the Banking System - Composition of lending and crowding-out - Higher government borrowing from the banking system has contributed to increased bank profitability but has reduced the availability of credit to the private sector, constraining private investment and growth. - Macro-financial linkages and structural weaknesses affecting banking sector outlook - Reliance on domestic financing and constrained access to credit for the private sector may limit credit growth and private investment. - Power sector financial distress (circular debt) and quasi-fiscal liabilities present contingent risks to banks through increased fiscal transfers and potential rises in sovereign and enterprise exposures. - Key economy-wide factors cited that bear on banking system vulnerabilities: - Circular debt in the energy sector accumulated to a stock of about 2 percent of GDP. - Real effective exchange rate appreciation of 17 percent over the past two years, contributing to weaker export competitiveness and potential external stress. - Foreign exchange reserves rebuilt from 1.5 months of imports in FY2012/13 to 3.8 months of imports in September 2015; SBP reserves were US$15.2 billion at end-September 2015. - Private sector credit growth versus government borrowing: despite several interest rate cuts totaling 400 bps since November 2014, private sector credit growth remained subdued. ### Policy Recommendations and Priorities Related to Financial Soundness - Limit crowding-out of private credit - Reduce reliance on the banking system for government financing to improve availability of credit for the private sector and support private investment. - Strengthen buffers and risk monitoring - Maintain adequate liquidity buffers across the banking system and continue close monitoring of bank exposures to the sovereign and to energy sector entities with accumulated circular debt. - Address structural fiscal and sectoral weaknesses that transmit to banks - Advance fiscal consolidation to lower government borrowing needs (budget deficit declined from 8.4 percent of GDP in FY2012/13 to 5.4 percent of GDP in FY2014/15). - Accelerate reforms and resolution of quasi-fiscal losses in the power sector and other loss-making public enterprises to contain contingent fiscal risks and reduce potential bank exposure to nonperforming claims. - Support financial sector policies that enhance stability - Continue efforts to strengthen the regulatory and supervisory framework as part of maintaining financial stability amid reform implementation and shifting macro conditions. *Source: IMF staff report excerpts on Pakistan — “8. Financial Soundness Indicators for the Banking System” and related context.* ### 11. Low oil prices present a unique opportunity to solidify external stability. The SBP has ### _cr1601 - 11. Low oil prices present a unique opportunity to solidify external stability. The SBP has ### External stability and reserve accumulation - The SBP continued spot purchases of foreign exchange, netting US$750 million in Q1 FY2015/16 to raise reserve coverage and bolster resilience against external shocks. - Staff and the authorities agreed further accumulation of reserves is desirable given a vulnerable balance of payments position and potential tightening of global financial conditions. - Staff noted additional reserve accumulation could help arrest recent REER appreciation that has been eroding competitiveness, while recognizing other factors (electricity shortages, security issues, business environment) also adversely affect competitiveness. ### Monetary policy stance and inflation targeting - A cautious monetary policy stance is warranted as global financial conditions remain uncertain and inflation is expected to rebound in the coming months. - The SBP has pursued an accommodative stance following declining inflation; staff and authorities agreed monetary policy should target clearly positive real interest rates to preserve low inflation expectations and meet program monetary targets. - Continued smooth functioning of the improved interest rate corridor is expected to improve SBP credibility; the government should support this credibility via continued fiscal discipline and improved cash management. - Medium-term plan: SBP intends to gradually move toward flexible (or soft) inflation targeting, conditional on pre-conditions: - Strengthening the interest rate corridor. - Advancement of fiscal consolidation. - Establishment of an independent monetary policy committee (MPC). - Development of technical forecasting capacity. - Strengthening SBP communication strategy. - Staff urged strengthening the monetary policy transmission mechanism, including by further reducing fiscal dominance, and noted that increased exchange rate flexibility under inflation targeting underscores the need to increase reserve buffers to more adequate levels. - Staff welcomed the authorities’ commitment to further strengthen central bank independence by addressing the remaining recommendations of the 2013 Safeguards Assessment during the current fiscal year (MEFP ¶7). ### Fiscal consolidation and public debt - Pakistan’s public debt-to-GDP ratio remains vulnerable due to reliance on short-term debt instruments and high gross financing needs (Annex I). - Fiscal consolidation path agreed to help place debt on a firmly declining trajectory: - Budget deficit (excluding grants) target of 3½ percent of GDP in FY2016/17. - Budget deficit target of 2½ percent of GDP over the medium term. - Authorities prefer a somewhat more gradual consolidation pace to address development needs, arguing public sector stimulation may be needed while private investment and FDI constraints are removed, with increased private sector participation (e.g., PPPs). ### Revenue mobilization and tax-to-GDP objectives - Agreement that fiscal consolidation needs to be based on raising the tax-to-GDP ratio to 14.5 percent over the medium term. - Current and potential revenue figures: - Tax revenue increased by one percent of GDP since FY2012/13 to 11 percent of GDP in FY2014/15. - Pakistan’s estimated revenue potential is over 22 percent of GDP. - Staff view: mobilizing additional revenue and widening the tax net is critical to finance infrastructure, education, healthcare, and targeted social assistance. ### Comprehensive, frontloaded tax reform agenda (key elements agreed) - Continued removal of concessions and exemptions, especially from the General Sales Tax (GST) and customs duties: - Cost of tax concessions and exemptions reduced from 1.9 percent of GDP in 2013/14 to 1.5 percent in 2014/15. - Administrative tax concessions and exemptions via Statutory Regulatory Orders (SROs) to be temporary and exceptional; further removal of SROs needed to widen the tax base. - Broadening the base and improving compliance: - Number of personal income tax (PIT) filers increased by more than 200,000 over the last two years; around 970,000 active PIT filers as of end-November. - Estimated potential PIT taxpayers: 5.7 million. - Number of corporate income tax (CIT) filers is less than one percent of all commercial and industrial electricity users. - Staff encouraged swift implementation of risk-based audit policy, measures to assess compliance risks, improved access to taxpayers’ financial information, and stepped-up governance in tax administration (MEFP ¶15-16). - Work welcomed on legislation against “benami” transactions to help reduce tax evasion; amending the AML Act to include serious tax crimes and measures targeting laundering of proceeds of tax crimes were recommended (MEFP ¶29). - Reduce GST refund backlog from PRs 87 billion in September 2015 to a level consistent with a three-month flow (or about PRs 20 billion) (MEFP ¶13). - IMF TA is supporting exploration of options for modernization of GST and other taxes. - Improving taxation and collection at the provincial level: - The seventh NFC award grants 57.5 percent of most revenues to the provinces. - Provincial tax revenue collection—GST on services, agriculture and property taxes—is very low. - Important to seek better balance in demarcation of revenue and expenditure responsibilities and encourage improvement in provincial revenue collection (MEFP ¶18). - Staff urged reduction of fragmentation in tax administration and improved cooperation with provincial tax authorities. ### Debt and public finance management - Strengthening debt and public finance management is needed to reduce fiscal risks: - Develop a debt management strategy based on building funding buffers, assessing off-budget fiscal risks, diversifying financing domestically and externally, and lengthening maturity profile of domestic debt. - Authorities plan to enhance capacity and effectiveness of the Debt Policy Coordination Office and update the medium-term debt strategy by January 2016 (MEFP ¶23). - Proposals to strengthen the fiscal responsibility framework, improve intergovernmental policy coordination, and develop a PPP framework at the federal level are being developed with IMF TA (MEFP ¶19). ### Promoting higher and more inclusive growth — competitiveness and exports - With decisive policy action, medium-term growth could reach 6½ percent (Box 4). - Policy priorities to raise growth: - Broadening the tax base and further reducing energy subsidies to free resources for higher public investment. - Strengthening the power sector. - Improving the business climate. - Restructuring or privatization of loss-making public enterprises. - Improving access to finance and reducing public borrowing to raise private investment. - Export performance concerns: - Exports are highly concentrated: textile and clothing account for about a half of total exports of goods. - Pakistan’s world market shares have been stagnant or declining for these products and across exported goods. - Real effective exchange rate has marked appreciation over the last two years, pointing to need for structural reforms and supportive macro policies to maintain a competitive REER. ### Authorities’ reform commitments and views - Authorities agreed on importance of raising business productivity and investment to stimulate exports and growth, noting security-related constraints in the past decade. - Plans include working with the World Bank on a new reform agenda with specific time-bound measures to strengthen the business climate (new end-February 2016 SB, MEFP ¶42). - Existing agendas highlighted: promoting financial inclusion, alternative dispute resolution mechanisms, simplifying property registration, developing regulatory framework for credit bureaus. - Authorities skeptical that public borrowing crowds out private credit given adequate bank liquidity and low nominal loan demand amid falling commodity prices; they view nominal exchange rate as market-determined and in line with fundamentals. ### Growth potential estimates (Box 4) - Staff estimates: regulatory reforms to reach average MENAP levels of GCI and FDI technology transfer index, plus increasing shares of trade and public investment to GDP by one percentage point each, could raise medium-term potential growth to 6.5 percent in 2017–21. ### Energy sector reforms and power sector improvements - Progress in reducing untargeted energy subsidies from 2.3 percent of GDP in FY2011/12 to the planned 0.4 percent of GDP in FY2015/16. - End-September indicative ceiling on accumulation of power sector arrears was met; quarterly loss reduction targets set for DISCOs (October 2015 SB). - Progress on multi-year tariffs is under way, with some delay owing to late finalization of DISCO multi-year investment plans (missed end-November 2015 SB) (MEFP ¶37). - Importance of implementing remaining energy sector reforms, including privatization of DISCOs, overcoming legal challenges to electricity surcharges, and completing gas sector pricing reforms (MEFP ¶40). - Authorities optimistic about eliminating the power deficit in the medium term through capacity increases and implementation of the power sector arrears reduction plan. ### Privatization and restructuring of public enterprises - Authorities remain committed to privatization and restructuring to improve resource allocation and contain fiscal risks from loss-making public enterprises. - Specific status: - Presidential Ordinance amended the Pakistan International Airlines (PIA) Act to pave way for soliciting expressions of interest by end-December 2015 (SB). - Privatization of Pakistan Steel Mills (PSM) put on hold; offer made to a provincial government—if declined, authorities expect privatization process could be completed by end-September 2016. - Staff noted bunching of planned transactions in the next nine months and considered the overall agenda ambitious despite progress. ### Access to finance and financial sector stability - Access to finance for SMEs: - Pakistan has 3.3 million SMEs (about 90 percent of enterprises). - Only 7 percent of SMEs receive bank lending. - Staff welcomed authorities’ plans to continue implementing reforms to improve SMEs’ access to finance (Box 6). - Financial sector resiliency and stability priorities: - Bolster regulatory and supervisory frameworks. - Strengthen corporate insolvency and bankruptcy regimes. - Institute deposit insurance scheme. - Enhance consolidated supervision. - Improve contingency planning framework for domestically important banks (D-SIBs); authorities evaluating policy options to enhance supervision for D-SIBs (MEFP ¶26). ### Power sector specifics and outcomes (Box 5) - Power sector background and recent improvements: - Utilization of installed capacity was less than 70 percent; improved load management reduced power outages from 8–11 hours to near zero in industry and 6–8 hours for households. - Capacity utilization improved to 80 percent owing to improved fuel mix and management of generation. - Authorities cleared a large part of circular debt from the budget and moved PRs 335 billion to the books of Power Holding Company Ltd. (PHCL); re-accumulation of arrears with PHCL amounted to about 2 percent of GDP in 2014/15. - Planned investments, including CPEC-related, envisage raising installed capacity by GW 9 in the next five years. - Plan to reduce flow of circular debt includes improving DISCO efficiency, taking advantage of low oil prices to bridge gap between costs and tariffs while minimizing consumer impact, improving fuel mix, resolving non-payment by provinces and special areas, strengthening regulatory environment, and introducing multi-year tariffs. - International experience cited: Turkey, Philippines, and Chile implemented decisive reforms yielding large improvements in electricity services and capacity. *Source: IMF staff report (selected excerpts).* ### 25. Progress is under way to strengthen banks that are below regulatory capital ### Progress is under way to strengthen banks that are below regulatory capital requirements ### Bank recapitalization and compliance - A rights issue for the only remaining CAR-non-compliant bank has been completed; after investor due diligence is completed (expected by end-December 2015), application of the full amount of the rights issue would enable it to become CAR-compliant (MEFP ¶25). - The size of this bank is about 0.9 percent of the banking system assets (or 0.4 percent of GDP), and the CAR shortfall has decreased to PRs 0.3 billion. - Time-bound plans are under way to bring three other small banks into compliance with the minimum requirement for paid-up capital (MCR) by raising equity or privatizing affected public banks. - These MCR non-compliant banks represent about 0.5 percent of banking sector assets (0.23 percent of GDP). - Staff stressed the need for the supervisor to continue to engage with noncompliant banks for early compliance with statutory requirements, and subsequently, for continued engagement to ensure that banks remain in compliance. ### Nonperforming loans (NPLs) and legal framework reforms - Nonperforming loans in the banking system have gradually reduced but remain high at 12.5 percent in September 2015 amid complex legal procedures, difficulties in enforcing collateral, and limited creditor rights. - The authorities have introduced legal amendments to parliament that would strengthen collateral enforcement. - Efforts underway to improve mortgage foreclosure and corporate restructuring legislation aim to improve recovery while preserving appropriate safeguards for borrowers (MEFP ¶26). ### Financial stability measures and regulatory enhancements - To put in place a modern deposit insurance mechanism: - The SBP has finalized the draft Deposit Protection Fund (DPF) Act, which is on track for enactment by end-February 2016 (SB). - Preparatory work to make the DPF operational by March 2016 has begun (MEFP ¶28). - The SBP, supported by IMF technical assistance, is strengthening: - The framework for supervision of financial conglomerates. - Contingency planning framework for systemically important banks. - Legislative agenda pursued to put in place a Futures Trading Bill and strengthen the regulatory powers of the Securities and Exchange Commission of Pakistan (SECP) (MEFP ¶26). - The SBP is moving forward with phased implementation of Basel III capital and liquidity standards (MEFP ¶27). - Staff supports ongoing reforms to strengthen financial stability (MEFP ¶28). ### Anti-money laundering / combating financing of terrorism (AML/CFT) - Improving the AML/CFT legal framework remains a priority for financial stability, detecting proceeds of corruption, and tax compliance (MEFP ¶29). - Government submitted draft amendments to the AML Act to the Senate that would include serious tax crimes in the Schedule of Offenses and enable the use of AML tools to combat tax crimes. - The Senate amended the draft legislation to significantly limit the scope of tax crimes in the Schedule of Offenses; the National Assembly adopted it without further changes. - While not covering many important tax crimes, including related to personal and corporate income taxes, these amendments are nonetheless a first step toward widening the application of AML tools to proceeds of tax crimes. - Authorities plan to introduce to parliament by January 2016 amendments to the AML Act to cover additional important tax crimes (new SB), for parliamentary passage and enactment by May 2016 (modified SB). - Agreed further steps once amendments are adopted: - Upgrade the regulatory framework to mitigate ML/FT risks, including with regards to the proceeds of corruption and tax crimes. - Bolster the Financial Monitoring Unit’s analytical capability. - Strengthen the effective implementation of relevant United Nations Security Council Resolutions (UNSCRs) to freeze terrorist assets. ### SME access to finance (Box 6 findings and policy options) - SME sector importance and current access: - SMEs represent about 30 percent of GDP, account for 25 percent of exported manufactured goods, and employ about 80 percent of the non-agricultural labor force. - Bank lending to SMEs is only about 1.2 percent of GDP. - NPLs among SME loans were 32 percent in September, 2015. - Supply-side constraints: - High NPLs and loan losses, lack of credit information and adequate creditor rights, and limited competition among banks. - Absence of an effective, secured lending chain for movable collateral. - SMEs are charged high collateral (130–140 percent of the total loan amount). - Most banks lack expertise, instruments, or capacity for SME lending; high administrative costs reduce marginal profit on small facilities. - Demand-side constraints: - Lack of financial literacy and capacity skills, high rates of interest, high collateral requirements, and cumbersome documentation processes. - Banks are the third preferred source of borrowing for SMEs after NGO MFIs and family/friends networks. - Policy options recommended: - Continue developing legal and regulatory framework (bankruptcy and foreclosure proceedings) and implement a viable secured lending chain to strengthen creditor rights. - Improve financial infrastructure, including the credit information system, collateral and insolvency regimes, and accounting and auditing standards. - The recent enactment of the Credit Bureaus Bill is an important step toward improving the credit information system. - Public sector support could sponsor technical assistance programs with lines of credit to encourage banks and non-bank financial institutions to increase SME lending. - Revisit the Prime Minister’s Youth Business Loans scheme—with a mark-up subsidy and partial guarantee facility for SME loans up to PRs 2 million—to enhance its effectiveness. ### Program performance, fiscal adjustments, and macro outlook (relevant implications) - Program performance: - End-September PCs on reserve accumulation, the SBP’s net swap/forward position, and government borrowing from the SBP were met with significant margins. - PCs on the net domestic assets (NDA) of the SBP and the general government budget deficit were missed by PRs 172 billion (4.9 percent of reserve money) and PRs 23 billion (close to 0.1 percent of GDP), respectively. - Indicative targets: cash transfers under BISP and accumulation of power sector arrears were met; federal tax revenue IT was missed by PRs 40 billion (0.15 percent of GDP). - Corrective measures and fiscal policies: - Authorities cut current and capital expenditures by 0.1 percent of GDP and are absorbing an agricultural support package amounting to 0.1 percent of GDP within the recurrent spending envelope. - Reclassification of some “nonplan loans” will result in additional budgetary spending amounting to 0.1 percent of GDP to be reallocated from existing capital expenditure plans. - Additional tax measures amounting to 0.15 percent of GDP introduced (raising excise duty on cigarettes and imposing regulatory and additional customs duties). - Authorities started consultative process to eliminate tax concessions and exemptions amounting to 0.3 percent of GDP on an annualized basis and are committed to implementing this measure by February 2016 (or as part of the FY 2016/17 budget if the end-December revenue target is met). - NDA target adjustment: - Higher-than-programmed NDA in Q1 FY2015/16 due to seasonal demand for currency (two Eid festivals), higher cash transactions related to the financial transactions tax for non-filers, and injections in the interbank market to align money market rates. - A revised path for NDA consistent with projected inflation was agreed; the end-December PC for NDA is proposed for modification. - Authorities agreed on a prior action for end-November NDA; preliminary information indicated this prior action has been met. - Broader macro outlook and priorities: - Real GDP growth is expected to further increase to around 4.5 percent this fiscal year; inflation is expected to rise to an average rate of 3.7 percent. - With continued reform implementation, growth is expected to accelerate to 5.5 percent in the medium term. - Main medium-term challenge: make the economy more resilient and competitive to generate strong and sustainable growth. - Recommended priorities: further fiscal consolidation, widening the tax net, completing energy sector reform, restructuring and privatization of loss-making public enterprises, improving business climate and competitiveness, and fostering financial sector stability and development. - Fiscal consolidation targets: budget deficit (excluding grants) of 3½ percent of GDP next year and 2½ percent over the medium term. - Tax revenue at 11 percent of GDP needs to be raised; authorities committed to raise this ratio to 14.5 percent in the medium term. - Specific tax priorities: removal of GST and customs duty concessions and exemptions, improving taxpayer compliance, encouraging better tax collection at the provincial level, and reducing fragmentation in tax administration. *Source: IMF staff report excerpt (MEFP and staff appraisal sections).* ### 40. The authorities should continue strengthening the monetary policy framework while ### The authorities should continue strengthening the monetary policy framework while ### Monetary policy stance and framework - Findings: - The authorities’ corrective action in restricting NDA growth puts monetary policy on track to achieve upcoming program targets, in line with projections for moderate inflation. - The establishment of an independent MPC is welcome. - Recommendations: - Maintain a cautious monetary policy stance in the short term. - Continue to target clearly positive real interest rates and keep inflation expectations well anchored amid increased global financial market volatility. - SBP should continue to put in place pre-conditions for gradual transition to flexible inflation targeting in the medium term. - Reduce fiscal dominance and further strengthen central bank independence by addressing the remaining recommendations of the 2013 Safeguards Assessment. ### Financial stability and access to finance - Findings: - Progress with strengthening banks that are below regulatory capital requirements is welcome. - Only 7 percent of SMEs receive bank lending. - The recently passed amendments to the AML Act constitute a first step toward widening the application of AML tools to proceeds of tax crimes, but many important tax crimes, including related to income taxes, are still not covered under the AML legislation. - Recommendations: - Bolster regulatory and supervisory frameworks. - Institute the deposit insurance scheme. - Improve contingency planning and enhance consolidated supervision. - Remove structural impediments to access to credit by putting in place efficient credit information and dispute resolution systems and strengthened frameworks for collateral, insolvency, and corporate restructuring. - Increase the scope of tax crimes covered under the AML Act without delay to improve the efficiency of the AML framework and the ability to fight tax evasion. - Continue efforts to improve systems to freeze terrorists’ assets. - Continue enhancement of the AML/CFT framework. ### Structural reforms to raise medium-term potential growth - Priorities: - Mobilize revenue and further reduce energy subsidies to free resources for higher public investment. - Continue persistent progress with the energy sector reform. - Improve the business climate and competitiveness. - Restructure or privatize loss-making public enterprises. - Promote gender equality and strengthen targeted social protection to support higher and more inclusive growth. - Expected impact: - Swift reform implementation could significantly raise Pakistan’s medium-term growth, help create jobs for new labor market entrants, and raise living standards. *PAKISTAN — INTERNATIONAL MONETARY FUND* ### 43. On the basis of Pakistan’s performance under the extended arrangement and the ### _cr1601 - 43. On the basis of Pakistan’s performance under the extended arrangement and the ### IMF staff recommendation and program decision - Staff supports the authorities’ request for: - Completion of the ninth review under the extended arrangement. - Waivers for the nonobservance of the end-September performance criteria (PCs) on the budget deficit and NDA of the SBP. - Modification of the end-December 2015 PC on NDA. - Staff recommends: - Establishment of end-March 2015 PCs. - Setting of seven new structural benchmarks. - Revision to the timeline of structural benchmarks as proposed in the attached MEFP. - That the next Article IV consultation take place on the 24-month cycle in accordance with the Decision on Article IV Consultation Cycles (Decision No. 14747-(10/96) (9/28/2010)). ### Quantitative performance criteria and selected program targets (FY2014/15 and FY2015/16) - Floor on net international reserves of the SBP (millions of U.S. dollars): - end-March (Projection) 5,354; end-June (Target) 8,300; end-September (Adj. Target) 6,885; end-December (Actual) 6,955; end-June (Target FY2015/16) 9,300; end-September 9,300; end-December 9,300; end-June (Performance Criteria) 10,000. - Ceiling on net domestic assets (NDA) of the SBP (stock, billions of Pakistani rupees): - end-March (Projection) 2,440; end-June (Target) 2,350; end-September (Adj. Target) 2,480; end-December (Actual) 2,661; end-June (Target FY2015/16) 2,350; end-September 2,580; end-December 2,660; end-June (Performance Criteria) 2,650. - Ceiling on overall budget deficit (cumulative, excluding grants, billions of Pakistani rupees): - end-March (Projection) 1,489; end-June (Target) 306; end-September (Adj. Target) 306; end-December (Actual) 329; end-June (Target FY2015/16) 625; end-September 625; end-December 1,012; end-June (Performance Criteria) 1,292. - Ceiling on SBP's stock of net foreign currency swaps/forward position (millions of U.S. dollars): - 1,700 (end-March projection and end-June target); actual end-December 1,385; FY2015/16 targets: 1,650 (end-June, end-September, end-December, end-June PC 1,650). - Ceiling on net government budgetary borrowing from the SBP (stock, billions of Pakistani rupees): - end-March (Projection) 1,893; end-June (Target) 1,800; end-September (Adj. Target) 1,800; end-December (Actual) 1,589; FY2015/16 targets: 1,800 (end-June, end-September, end-December, end-June PC 1,800). - Cumulative floor on Targeted Cash Transfers Spending (BISP) (billions of Pakistani rupees): - end-March (Projection) 94; end-June (Target) 23; end-September (Adj. Target) 23; end-December (Actual) 24; FY2015/16 targets: 46 (end-June), 46 (end-September), 70 (end-December), 95 (end-June PC). - Floor on net tax revenues collected by the FBR (cumulative, billions of Pakistani rupees): - end-March (Projection) 2,588; end-June (Target) 640; end-September (Adj. Target) 640; end-December (Actual) 600; FY2015/16 targets: 1,390 (end-June), 1,390 (end-September), 2,105 (end-December), 3,104 (end-June PC). - Ceiling on power sector payment arrears (flow, billions of Pakistani rupees): - end-March (Projection) 57; end-June (Target) 36; end-September (Adj. Target) 36; end-December (Actual) 13; FY2015/16 targets: 27 (end-June), 27 (end-September), 22 (end-December), 29 (end-June PC). ### Structural benchmarks, prior actions, and status (selection) - Monetary sector (Prior Actions and Structural Benchmarks): - Bring the stock of NDA to or below PRs 2,652 billion by end-November 2015 — Met. - Enact amendments to the SBP law by end-November 2015 — Met (implemented in November 2015 noted elsewhere as Not met, implemented in November 2015). - Announce time-bound plan to improve SBP interest rate corridor by setting the policy rate between the floor and ceiling — end-February 2015 — Met. - Make the improved interest rate corridor operational — end-September 2015 — Met. - Improve internal SBP operations: Investment Committee oversight at least four times per year; Internal Audit Department reviews of program monetary data within two months after each quarter — end-February 2015 — Met. - Fiscal and tax administration benchmarks: - Draft legislation to permanently prohibit SRO practice granting exemptions and loopholes — end-March 2015 — Met. - Merge NTN system (3.6 million individuals) with CNIC database (about 150 million people) — end-September 2015 — Met. - FBR to adopt a new audit policy moving toward risk-based auditing — end-September 2015 — Met. - Put in place a comprehensive monitoring system for tax audits with quantitative performance criteria — end-December 2015. - Public debt management and transparency: - Reorganize the Debt Policy Coordination Office as a middle office to update the MTDS and monitor implementation — end-March 2015 — Met. - Appoint risk management staff (director and two staff) and begin publishing quarterly debt management risk reports — end-October 2015 — Met. - Financial sector and legal frameworks: - Enact the Securities Bill in line with Fund staff advice — end-January 2016 — Met in May, 2015. - Enact the Credit Bureau Act — end-November 2015 — Met in August, 2015. - Adopt amendments to AMLA to include serious tax crimes — end-November 2015 (rescheduled to end-May 2016) — Not Met by end-November 2015. - Enact the Deposit Protection Fund Act — end-February 2016 (status: pending in table). - Energy sector and DISCOs: - Enforce quarterly loss-reduction, collection, and recovery targets for each DISCO — October 15, 2015 — Met. - Determine and notify multi-year tariffs for FESCO, IESCO, and LESCO — end-November 2015 — Not met. - Complete bidding process for shares of FESCO — end-June 2016 — To privatize electricity distribution companies. ### Key macroeconomic outcomes and projections (selected) - Real GDP at factor cost (annual growth, percent): - 2010/11: 3.6; 2011/12: 3.8; 2012/13: 3.7; 2013/14: 4.0; 2014/15: 4.2; 2015/16 (Proj.): 4.5. - Consumer prices (period average, percent): - 2010/11: 13.7; 2011/12: 11.0; 2012/13: 7.4; 2013/14: 8.6; 2014/15: 4.5; 2015/16 (Proj.): 4.7. - Gross official reserves (millions of U.S. dollars): - 2010/11: 14,784; 2011/12: 10,799; 2012/13: 6,008; 2013/14: 9,096; 2014/15: 13,534; 2015/16 (Proj.): 17,131; end-period projections (Table 5): 15,247, 16,119, 17,131, 17,666, 19,550, 21,066, 22,310, 23,580. - Current account balance (in percent of GDP): - 2010/11: 0.1; 2011/12: -2.1; 2012/13: -1.1; 2013/14: -1.3; 2014/15: -1.0; 2015/16 (Proj.): -0.9. - Exports and imports (f.o.b., U.S. dollars; selected growth rates): - Exports (2014/15 change): -3.9 percent; 2015/16 projection (growth) 0.7 percent. - Imports (2014/15 change): -0.9 percent; 2015/16 projection (growth) -0.2 percent. - Gross national saving (percent of GDP): - 2014/15: 14.1; 2015/16 (Proj.): 14.8. ### Fiscal position and public debt (selected) - Revenue and grants (percent of GDP): - 2014/15: 15.4 percent; 2015/16 (Proj.): 15.5 percent. - Expenditure (including statistical discrepancy, percent of GDP): - 2014/15: 19.6 percent; 2015/16 (Proj.): 19.6 percent. - Budget balance (including grants, percent of GDP): - 2014/15: -5.3 percent; 2015/16 (Proj.): -4.2 percent. - Primary balance (including grants, percent of GDP): - 2014/15: -0.5 percent; 2015/16 (Proj.): 0.1 percent. - Total general government debt (percent of GDP): - 2014/15: 63.2 percent; 2015/16 (Proj.): 62.4 percent. - Memorandum nominal GDP (market prices): - 2014/15 (billions of Pakistani rupees): 27,384; 2015/16 projection: 30,170; 2015/16 projection in U.S. dollars: 267.5. ### Balance of payments and external financing (selected) - Current account (millions of U.S. dollars, Table 5 quarterly and annual): - 2013/14: -3,130; 2014/15: -2,627; 2015/16 projected annual deficits: -1,488 (Q1), -2,624 (Eighth Review End-Year), -2,396; subsequent year projections through 2019/20 range up to -3,846 (2019/20). - Exports f.o.b. (levels): - 2013/14: 25,068; 2014/15: 24,083; 2015/16 projections: 24,300; later-year projections rise to 30,552 (2019/20). - Imports f.o.b. (levels): - 2013/14: 41,769; 2014/15: 41,401; 2015/16 projections: 41,179; later-year projections rise to 52,189 (2019/20). - Gross external financing needs (in millions of U.S. dollars): - 2013/14: 8,713; 2014/15: 7,262; projections 2016/17 onward: 6,176; 7,340; 7,876; 7,180; 9,844; 9,243. - Reserves and reserve changes (Table 5): - Reserves and related items (2014/15 Q1–Q4 and projections) show declines at times: e.g., Reserves and related items -3,858 (2013/14), -2,636 (2014/15), with projected end-period gross official reserves shown in memorandum items. ### Monetary and banking sector indicators (selected) - Monetary aggregates (Table 7, selected): - Broad money (end-period, billions of Pakistani rupees): 9,968 (Q1 2013/14) to 12,638 (projection 2015/16). - Reserve money (selected): 2,861; reserve money percent changes noted across quarters. - Banking system soundness (Table 8, Dec 2012–Sep 2015 highlights): - Regulatory capital to risk-weighted assets: ranges around 15.4 to 18.2 (Dec 2012 to Sep 2015 series). - 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, 12.5 (across reported dates). - Return on assets (after tax): around 1.4 to 1.7 (series). - Liquid assets to total assets: around 47.4 to 53.8 (series). - Financial soundness and vulnerability indicators (Table 10 selected): - Public sector gross debt (percent of GDP): 55.3 (2010/11); 60.5 (2011/12); 64.0 (2012/13); 64.9 (2013/14); 64.8 (2014/15); 64.4 (2015/16); projected declines to 55.0 by 2019/20. - Gross international reserves (GIR) in billions of U.S. dollars: 14.8 (2010/11); 10.8; 6.0; 9.1; 13.5; 17.7; projected increases thereafter. ### Program modalities and Fund engagement - Schedule of reviews and purchases (Table 11 highlights): - Approval of arrangement: September 4, 2013 — 360.35 Millions of SDRs. - Reviews mapped quarterly/biannual through August 1, 2016 (twelfth review) with amount of purchase 36.035 Millions of SDRs repeated for many reviews. - Total program purchases: 439.3425 Millions of SDRs (table listing total 4393425). *Source: Pakistani authorities; IMF World Economic Outlook; and IMF staff calculations.* ### Annex I. Public and External Debt Sustainability Analysis (DSA) ### Annex I. Public and External Debt Sustainability Analysis (DSA) ### Public debt outlook and baseline projections - Public debt projected to decline from 64.9 percent of GDP in 2015 to 55.2 percent by 2021. - Fiscal consolidation under the program is the key driver of improvements in debt dynamics. - The public sector coverage includes federal and provincial governments, but does not include state-owned enterprises (SOEs); government guarantees and circular debt among energy SOEs represent contingent liabilities amounting to 2.3 percent and 0.8 percent of GDP, respectively. - Gross financing needs are high and sensitive to shocks; indicators reflect the relatively large share of national savings schemes. ### Debt dynamics and vulnerabilities - Pakistan’s debt dynamics improved after fiscal consolidation that lowered the budget deficit from 8.9 percent of GDP in FY2011/12 to 5.4 percent in FY2014/15. - Debt dynamics remain vulnerable to: - Economic growth shocks (real GDP growth sensitivity emphasized). - Primary balance slippage. - Interest rate shocks, amplified by significant reliance on short-term debt. - Short-term domestic debt (less than one year) share: close to 50 percent (down from 64 percent in 2013). - Domestic short-term instruments and national saving schemes have a relatively captive investor base, which mitigates but does not eliminate rollover risk. ### Debt composition, maturity, and financing structure - Short-term domestic debt share: close to 50 percent in the most recent data (64 percent in 2013). - External bonds and bank private creditors account for only about 3 percent of total external debt. - Improvements in debt management have extended the yield curve and improved the maturity profile, but average maturity remains short and needs further lengthening. - Effective interest rate (defined as interest payments divided by debt stock at end of previous year) projections shown include values such as 8.0, 7.4, 8.0, 7.8, 7.8, 7.4 (annual series in the staff table). ### External debt outlook and sustainability - Gross external debt reached 24.4 percent of GDP in 2015 and is projected to modestly decline over the medium term. - Gross external financing needs expected to peak at 2.6 percent of GDP (noted in text: “expected to peak at 2.6 percent of GDP”). - External DSA results: - External debt-to-GDP ratio resilient to adverse shocks; would not exceed 37 percent of GDP under any scenario examined. - Gross external financing need (in billions of US dollars) series in the table: 2.7, 7.3, 5.3, 6.5, 6.4, 6.8, 6.9, 6.1, 8.5, 7.7, 7.4 (2011–21). - External debt-to-exports ratio (in percent) values in the table include: 213.2, 220.2, 193.2, 215.1, 217.5, 251.4, 260.6, 248.6, 231.5, 215.8, 205.3 (2011–21). ### Scenarios and stress tests - Baseline, historical, and alternative scenarios presented: - Baseline real GDP growth projections (2016–2021): 4.2, 4.5, 4.7, 5.0, 5.2, 5.5 (in percent). - Baseline inflation (GDP deflator, in percent) projections (2016–2021): 3.6, 3.7, 5.0, 5.0, 5.0, 5.0. - Baseline primary balance (2016–2021): -0.5, 0.1, 1.3, 1.5, 1.5, 1.4 (in percent of GDP). - Stress tests examined include: - Primary Balance Shock. - Real GDP Growth Shock (example growth path in shock: 4.2, 2.2, 2.2, 4.5, 5.0, 5.2). - Real Interest Rate Shock (example effective interest rate under shock: 8.0, 7.4, 8.9, 9.0, 9.1, 8.8). - Real Exchange Rate Shock. - Combined Shock and Contingent Liability Shock. - Results summary from stress testing: - Debt would stabilize even under significant shocks, except when positive shocks are restricted to the primary balance distribution (in which case public debt-to-GDP trends up under strong shocks). - Under stress, gross nominal public debt (in percent of GDP) and public gross financing needs (in percent of GDP) graphs indicate increases under adverse scenarios, but external DSA bound and stress tests keep external debt-to-GDP below 37 percent under all scenarios. ### Key quantitative indicators (selected series and values as presented) - Nominal gross public debt (percent of GDP): 60.1 (2014), 64.8 (2015), 64.9 (2016), 63.2 (2017), 63.6 (2018), 62.2 (2019), 60.0 (2020), 57.8 (2021), 55.2 (projection to 2021 noted in text). - Public gross financing needs (in percent of GDP) sample series: 12.1 (2014), 35.1 (2015), 28.7 (2016), 32.4 (2017), 28.8 (2018), 28.0 (2019), 27.6 (2020), 26.5 (2021), 25.4 (final projection). - Real GDP growth (in percent) historical and projected: 4.8 (2005-2013 actual baseline), 3.7 (2014), 4.0 (2015), continuing as in baseline projections noted above. - Inflation (GDP deflator, in percent) sample values: 11.3 (2014), 7.1 (2015), 6.9 (2016), then projected lower in subsequent years per baseline. - Identified debt-creating flows cumulative projection (2014–21): -11.5 (table cumulative line). - Change in gross public sector debt cumulative (2014–21): -9.7 (table cumulative line). ### Policy implications and recommendations (as presented) - Continued fiscal consolidation and structural reforms over the medium term are required to realize the projected decline in public debt from 64.9 percent of GDP in 2015 to 55.2 percent by 2021. - Increase average debt maturity to reduce vulnerability to interest rate shocks and rollover risk associated with short-term debt. - Sustain and deepen fiscal consolidation to reduce high gross financing needs and improve debt profile resilience. - Maintain active debt management and further diversify external financing instruments to strengthen the external debt profile. *Source: IMF staff (Annex I. Public and External Debt Sustainability Analysis (DSA), Pakistan).* ### Appendix I. Letter of Intent ### Appendix I. Letter of Intent ### Recent Economic Developments and Outlook - Real GDP growth projection for program purposes: about 4.5 percent in FY 2015/16; government target: 5.5 percent for the fiscal year. - Contributing factors to growth: lower oil prices, planned improvements in the supply of gas and electricity, investment related to the China Pakistan Economic Corridor (CPEC). - Large-scale manufacturing growth in Q1: 3.9 percent (compared to 2.6 percent last year). - Risks to growth: further decline in private credit growth; weakness in both exports and imports. - Headline consumer price inflation: 2.7 percent y-o-y in November; expected average inflation of around 3.7 percent in FY2015/16. - Gross international reserves: US$15.2 billion by end-September 2015 (up from US$13.5 billion at end-June 2015); coverage: close to four months of prospective imports. - Current account: first-quarter deficit of US$109 million (compared to the average deficit of US$657 million in FY2014/15). - Reserve coverage outlook: expected to be more than four months of imports by end-FY2015/16. - Fiscal outturn Q1 FY2015/16: PC on general government budget deficit excluding grants missed by PRs 23 billion (0.07 percent of GDP); shortfall largely due to federal tax revenue shortfall of PRs 40 billion (missed end-September IT). - BISP coverage expanded to 5.14 million beneficiaries last quarter; end-September IT on accumulation of power sector arrears met. - End-September NIR target met with a margin of US$70 million. - End-September NDA target missed by PRs 181 billion due to: - Unusual seasonal demand for currency in circulation in Q1 FY2015/16 (two Eid festivals). - Higher volume of cash transactions related to financial disintermediation from the new financial transactions tax for non-filers. - Injection in the interbank market to align money market rates close to the recently lowered policy rate. - Monetary aggregates as of September 2015: - Reserve money increase: 24.9 percent y-o-y in September 2015. - Broad money expansion: 14.5 percent y-o-y. - Private sector credit growth: 3.6 percent y-o-y in September 2015. - Credit for fixed investment growth: 21 percent year-on-year in September 2015. - Corrective action taken: aim to bring stock of NDA to below PRs 2,652 billion by end-November 2015 (subject to program adjustors, prior action). ### Monetary and Exchange Rate Policies - Policy focus: boosting external reserves, maintaining price stability, strengthening SBP independence. - Exchange rate and reserves: - Continued use of oil windfall to build external buffers. - Rupee depreciation: 3 ½ percent during July-October 2015. - Policy interest rate action: SBP lowered the policy rate (repo and reverse repo) by 50 bps in September 2015. - Monetary stance: maintain positive real interest rates and set policy rate in a forward-looking fashion to anchor low inflation expectations and meet monetary targets. - Interest rate corridor: newly improved corridor noted to work smoothly and improve SBP credibility. - SBP independence: - Amendments to the SBP law creating an independent decision-making monetary policy committee approved by the Senate, re-approved by the National Assembly, and enacted in November 2015 (prior action). - Work with IMF staff to address remaining recommendations of the 2013 Safeguards Assessment during the remainder of the program period. - Medium-term objective: strengthen monetary policy transmission and gradually move toward an inflation targeting framework via: - Strengthening SBP analytical capabilities. - Continued implementation of the new interest rate corridor. - Improving transparency and disseminating information about inflation expectations and forecasts. ### Fiscal Policy - Fiscal consolidation commitment: reduce budget deficit excluding grants to 4.3 of GDP in the current fiscal year and to 3½ percent by end of program in FY2016/17. - Policy intent: revenue mobilization and expenditure rationalization across all layers of government to create space for infrastructure, education, healthcare, and targeted social assistance. - Measures to attain 4.3 percent of GDP target (including a 0.3 percent of GDP adjustor for one-off spending): - Identified causes of revenue shortfall: lower international commodity prices and domestic inflation, underperformance in collection of Gas Infrastructure Development Cess (GIDC), temporarily reduced withholding tax rate on banking transactions. - Additional revenue measures amounting to PRs 40 billion: regulatory duties and additional customs duties on a variety of products; raising excise duty on cigarettes. - Initiate consultation on SRO removal (phase III) in December 2015 yielding 0.3 percent of GDP on a full-year basis; to be concluded by end-January 2016 and enacted by end-February 2016. If end-December revenue target is met, introduce as part of the FY2016/17 Finance Bill. - Expenditure-side measures: reduce recurrent and capital spending by PRs 15 billion each unless stronger federal revenue performance warrants otherwise. ### Tax Reform and Revenue Mobilization - Achievements over past two years: - Eliminated tax exemptions and concessions amounting to PRs 224 billion. - Introduced differential taxation of filers and non-filers. - Reengineered and automated business processes and procedures in tax administration. - Initiated tariff liberalization and measures to change taxpayer behavior. - Federal Board of Revenue (FBR) did not grant new tax concessions and exemptions; government did not issue concessional SROs except under exceptional circumstances. - Parliament approved legislation permanently restricting government authority to grant tax concessions or exemptions (now in parliament’s purview, with limited exceptions for temporary ECC approval). - Target: raise tax-to-GDP ratio to 14.5 percent by FY2019/20 through broadening the tax base, strengthening tax administration, and shifting tax composition from indirect to direct taxes. - GST modernization: - Continue efforts in coordination with provincial revenue authorities before FY2016/17 budget presentation. - Outstanding GST refund claims reduced from PRs 113.2 billion (November 2014 peak) to PRs 86.5 billion by end-September 2015. - Aim to bring GST refund claims to a level consistent with no more than a three-month flow of claims (estimated at PRs 20 billion). - Recent tax administration actions and outcomes: - Issued 225,000 first notices by end-September 2015 (met target) to increase potential taxpayers. - Number of taxpayers filing income tax returns increased from 722,000 on July 1, 2013 (tax year 2012) to 967,544 (tax-year 2014) as of end-November 2015. - Retail trade initiative: bifurcate into Tier 2 (small retailers charged GST via monthly electricity bills) and Tier 1 (large retailers registered under GST). Out of 15,000 large retailers identified, about 6,500 registered by end-September 2015. - Planned acceleration of tax administration reforms: - Improve FBR information technology infrastructure and expand access to taxpayer information; integrate National Tax Number (NTN) with Computerized National Identity Card (CNIC) database (SB, end-September 2015). - Adopt comprehensive monitoring system for tax audits with quantitative performance criteria (new SB, end-December 2015). - Income tax law amended to provide FBR full access to bank accounts and transactions; legal challenges have delayed operationalization; FBR strengthening intelligence capacity using multiple information sources. - Prepare and submit draft legislation against “benami” transactions to the National Assembly by end-January 2016 (SB). - Require all government suppliers to be on the current list of active income and GST taxpayers; FBR started monitoring penalties imposed by field officers. - Streamline the online filing scheme to facilitate registration and filing of PIT returns and maintain coverage of tax audits. *Attachment I. Memorandum of Economic and Financial Policies, Letter of Intent dated December 3, 2015.* ### 7.5 percent of filed tax returns. ### _cr1601 - 7.5 percent of filed tax returns. ### Tax administration, governance, and anti-corruption measures - "7.5 percent of filed tax returns." - Establish a tax policy research and analysis unit under the Revenue Division to improve analytical capacity for fiscal policymaking. - 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 Directorate General of Internal Audit) to strengthen anti-corruption structures by end-December 2015. - Simplify tax laws and procedures and work with provinces to consolidate collection of provincial taxes and fees to reduce discretion of tax officials and eliminate corruption opportunities. - Expand IRIS (an end-to-end integrated IT system) to all business areas throughout the FBR network 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, and publish aggregate results quarterly starting in April 2016. ### Fiscal consolidation, budgetary spending, and provincial commitments - Reclassification of some non-plan loans will result in additional budgetary spending of 0.1 percent of GDP to be made through re-allocation of existing capital expenditure plans, including at the provincial level. - Additional budgetary spending related to the new agricultural spending package: 0.1 percent of GDP to be absorbed within recurrent spending. - Reduce energy subsidies (including amounts for arrears clearance) to 0.4 percent of GDP in FY2015/16, from 0.8 percent in FY2014/15. - Mitigating measures will be taken as necessary against potential negative outcomes of legal challenges to electricity surcharges (¶32). - Provincial finance secretaries have 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. - Total provincial own tax and nontax revenues standing at 1.1 percent of GDP. - Intensify high-level interaction with provincial authorities; hold quarterly federal-provincial Finance Secretaries meetings to review fiscal performance and coordinate spending priorities. - Prepare contingency measures and reduce expenditure allocations in the first nine months of the year compared to the budget to create a fiscal buffer. ### Devolution, revenue-expenditure balance, and property taxation - Pakistan operates a highly decentralized system after recent constitutional amendments. - The seventh NFC award grants 57.5 percent of most revenues to the provinces, along with devolution of spending responsibilities and administration of the GST on services, in addition to existing taxation authority in agriculture and property. - In new NFC negotiations, seek agreement to balance devolution of revenue and expenditure to allow macroeconomic stability. - Federal government to encourage provinces to improve provincial revenue collection by modernizing agriculture taxation and improving taxpayer compliance, with focus on identifying mis-declarations. - From January 2016, work with provincial governments to establish a centralized electronic fiscal cadastre to better record transactions and assess real estate tax for each property based on periodically updated market valuation. ### Fiscal Responsibility and Debt Limitation (FRDL) Act and contingent liabilities - Evaluate FRDL Act (adopted 2005) to ensure efficacy and alignment with emerging international best practices. - Seek IMF advice on options to strengthen FRDL Act: appropriate fiscal policy anchor, medium-term orientation of the budget process, and policy coordination across government layers. - Improve policies and procedures for government guarantees and risk management; government guarantees size about 2.3 percent of GDP in FY2014/15. - Aim to systematically account for fiscal costs and contingent liabilities associated with broader public sector operations including SOEs, PPPs, and SPVs. - Requested IMF technical assistance to develop a PPP framework at the federal level. ### Gender-responsive budgeting and analysis - Enhance budget preparation process to better incorporate gender equality. - Reinvigorate gender-disaggregated analysis and prepare a plan for gender-responsive budgeting. - Carry out a gender-responsive analysis of the FY2015/16 budget with development partners by end-February 2016; this will become a baseline for the FY2016/17 budget. - Share findings and policy proposals with provincial governments and encourage their use in provincial budget formulation. ### Social protection — Benazir Income Support Program (BISP) - As of end-September 2015, reached 5.14 million beneficiaries and met the indicative target for transfer payments. - In FY 2015/16, on track to expand beneficiaries to 5.3 million. - If additional donor support secured, further increase stipends (as elaborated in the TMU). - Signed amendments in contracts with commercial banks working with BISP to improve service delivery and reduce cost; extended existing contracts for continuity of benefit transfers. - Decision on revisiting the beneficiary-centric payment model with State Bank of Pakistan expected by November 2015; if needed, finalize transition plan by end-November 2015. - Rolled out education-conditional cash transfers (CCT) in partnership with provincial governments: as of end-September 2015 disbursing in 32 districts with more than 700 thousand children beneficiaries. - Expand total number of children benefiting from CCT to 1 million by end-March 2016. ### Fiscal financing and cash management - Stock of government borrowing from the SBP reduced by PRs 304 billion, well below the end-September program target, helped by issuing T-bills, additional Coalition Support Fund (CSF) inflows, bond issuance, borrowing from commercial banks and short-term foreign borrowing. - Continue fiscal consolidation, secure adequate foreign financing, and improve cash management system. - Further improve cash management coordination with provinces in light of forthcoming IMF TA recommendations on the FRDL Act (¶20). ### Debt management institutional strengthening - Focus on reducing rollover risks, balancing domestic and external financing, and lengthening maturity profile of domestic public debt while monitoring contingent liabilities. - Improve effectiveness of the Debt Policy Coordination Office (DPCO) and integrate it in Ministry of Finance core functions; enhanced staffing capacity for optimal borrowing strategy implementation. - Synchronize rate setting between domestic retail and wholesale debt markets. - Specific measures: - 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 (initial draft by end-November 2015 and publication by end-January 2016). - Met end-October 2015 SB requirement to 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 remained sound with high earnings and solvency ratios. - Pre-tax profit of the system increased by 43 percent y-o-y in September, mainly from increased net interest income from government securities and higher noninterest income despite higher provision charges. - Capital adequacy ratio (CAR) improved to 18.2 percent, above the 10 percent minimum requirement. - As of end-September 2015, nonperforming loan (NPL) ratio at 12.5 percent and net NPL ratio at 2.5 percent. - SBP progress on banks below regulatory capital adequacy requirement: - Only one bank (out of 35 banks) remains CAR and MCR-noncompliant. - Rights issue completed; investor due diligence expected by end-December 2015; full amount of rights issue would enable CAR compliance. - Three small banks remain below minimum capital requirement (MCR) though CAR-compliant; time-bound plan to bring them into regulatory compliance by end-June 2016. - Strengthening regulatory and supervisory framework: - Revised SECP Act to enhance regulatory power to be discussed with IMF, considered by CCI, and submitted to Parliament for enactment by April 2016. - Futures Trading Bill to be placed before Parliament by end-December 2015. - SBP-SECP working group continues surveillance and assessment of banking groups and financial conglomerates; developing framework for consolidated supervision with IMF TA. - Amendments to foreclosure clauses in the Financial Institutions (Recovery of Finances) Ordinance, 2001 placed in Parliament; draft Corporate Restructuring Companies (CRC) Act submitted to Parliament in April 2015. - SECP prepared a concept note for developing the Corporate Rehabilitation Act. - SBP improving contingency planning framework with IMF TA, including legal framework review, gap identification, consolidated supervision assessment and D-SIB monitoring mechanism development. - Note on noncompliant bank size and shortfall: - The size of this bank is about 0.9 percent of the banking system assets (or 0.4 percent of GDP), and the CAR shortfall has decreased to PRs 0.3 billion. The bank’s CAR is at 9.63 percent (against 10 percent requirement). ### Transition to Basel III and deposit insurance - Phasing in strengthened capital adequacy: CAR requirement to increase to 10.25 percent by December 2015, with further gradual steps toward 12.5 percent by 2019. - Working toward adopting Basel III liquidity rules by end-December 2016. - Deposit Protection Fund (DPF) Act finalized in line with TMU best practices; introduced in parliament in November, 2015 and expected to be enacted by end-February 2016 (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 strengthening - Progress toward end-November benchmark on strengthening AML legislation. - Government submitted amendments to the AML Act to include serious tax crimes in Schedule of Offenses and enable use of AML tools to combat tax crimes. - Senate amendments significantly limited scope of tax crimes in Schedule of Offenses; National Assembly adopted it without further changes. - Will introduce new amendments to parliament to cover additional important tax crimes, as defined in the TMU, by January 2016 (new SB), for enactment by end-May 2016 (modified SB). - Continue strengthening effectiveness of AML/CFT framework in line with international standards, bolster Financial Monitoring Unit’s analytical capability, and strengthen implementation of relevant UN Security Council Resolutions. ### Energy sector reforms and power sector arrears - National Energy Policy identifies priority steps for a three–five year reform agenda addressing price distortions, insufficient collections, costly and poorly targeted subsidies, governance and regulatory deficiencies, and low efficiency. - Reduce electricity subsidies to 0.3 percent of GDP in FY 2015/16, and allocate an additional 0.1 percent for arrears clearance. - Address flow and stock of payable arrears in power sector including by allocating budgetary resources, levying surcharges, improving company performances and recoveries, and initiating privatization of power sector companies. Power sector — Price adjustments - Notified FY2014/15 tariff in June 2015 as determined by NEPRA and implemented surcharges in line with program targets (TMU ¶20). - Commit to full recovery of costs from consumers and adjust prices as needed. - Finalize technical loss diagnostic studies for all DISCOs so NEPRA can consider better loss rate estimates in FY2015/16 tariff determination by end-April 2016. - Commit to gradually phasing out untargeted subsidies while protecting most vulnerable consumers. Power sector — Arrears (circular debt) - Monitoring mechanism developed to track stock and flow of payables at all energy sector levels (including PHCL) as defined in TMU ¶22. - Payables in the power sector increased by PRs 13 billion in first quarter of FY 2015/16 and currently stand at PRs 326 billion at end-September 2015. - Stock includes: (i) residual from payables clearance of June and July 2013; (ii) disputed amount with IPPs; (iii) DISCOs non-recovery and penalties levied on past nonpayment (as defined in the TMU); (iv) transmission and distribution losses not recognized by regulator; (v) debt from court stay order on surcharges; (vi) unpaid amounts of verified subsidy claims of DISCOs under various heads; (vii) PHCL loan servicing; and (viii) 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-September 2015. Power sector — Arrears reduction plan - Adopted plan to reduce accumulation of payables arrears and gradually eliminate the stock through improved collections, reduced operating costs, lower losses, and tariff reforms. - Aim to reduce accumulation of payables from PRs 209 billion in FY 2014/15 (including PHCL) to under PRs 100 billion in FY 2015/16, with a view to further halving new arrears accumulation by FY2018/19 (Table 1). - Some plan elements not fully addressed (implementation in two regions and GST refunds), but met end-September IT on flow of power sector arrears, aided by lower international oil prices. - Remain on track to meet upcoming quarterly targets. - Continue to reduce losses and improve collections through capital expenditures and revenue-based load management; overall losses in the last 12-months declined (text truncated in source). *Source: _cr1601 - 7.5 percent of filed tax returns.* ### 19.0 to 18.2 ### _cr1601 - 19.0 to 18.2 ### Electricity sector performance and arrears reduction - System-level performance: - Losses improved from 19.0 to 18.2 percent. - Collections improved from 88.6 to 90.7 percent, primarily due to better load management across consumers in rural and urban areas, and industries. - Management and institutional actions: - Chief executives and some members of senior management of poorly performing DISCOs have been replaced. - Working with provincial governments to address their payment problems. - Allocated 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. - Moving the stock of PHCL debt into DISCOs’ balance sheets where privatization will take place; will continue to fully service PHCL obligations in the meantime. - Tariffs and cash flow: - FY2014/15 determined tariffs utilized room created by falling oil prices and late payment surcharges, and incorporated better reflection of system losses to arrest part of the build-up of circular debt and improve cash-flow. - Continued decline in fuel prices will mitigate build-up of arrears due to prior year adjustments. ### Monitoring, enforcement, and legal framework - Performance contracts and targets: - Signed performance contracts with the boards of nine DISCOs. - Begun monitoring monthly performance indicators specified in contracts; invoked remedial measures for LESCO, HESCO, and SEPCO. - Quarterly loss-reduction, collection, and recovery targets set for each DISCO in September (mid-October 2015 SB). - Legal reforms and timelines: - Amendments to Penal Code 1860 and Code of Criminal Procedures 1898 promulgated through Presidential Ordinance which lapsed in August 2014; Bill transmitted to the Senate and referred to the relevant standing committee. - Expect enactment of the amendments by end-January 2016 (new SB). - Will work with the Ministry of Law on creating an effective system for handling cases related to electricity theft effective by end-March 2016. - Draft Electricity Act submitted to the CCI secretariat in October 2015 to build consensus with the provinces by end-March 2016. ### Demand-side management and efficiency measures - Advanced Metering Infrastructure (AMI): - Required approvals finalized to begin AMI before the end of October 2015; initial implementation in LESCO and IESCO to reduce commercial losses, increase recoveries and better manage revenue-based load shedding. - Legislation and standards: - Consultative process completed on draft Pakistan Energy Efficiency and Conservation Act. - CCI approved the bill in August 2014; bill in the National Assembly and expected enactment in early 2016. - Act will include equipment performance standards covering key electrical and gas equipment and appliances not yet covered; implementing regulations being prepared. ### Supply-side management and generation plans - Fuel mix and cost savings: - Continued prioritization of gas and coal rather than fuel oil in electricity generation; committed to transition to market-based allocation of natural gas in medium-term. - By providing adequate liquidity and fuel inventories to generation plants, prioritized generation at more efficient plants, saving PRs 47 billion and increasing power generation by 3 percent. - Better load management achieved zero load-shedding for industrial consumers and predictable reduced load-shedding for urban and rural consumers. - Investments and capacity additions: - Continue rehabilitating generation plants and upgrading transmission and distribution to reduce technical losses. - Signed performance contracts with three state-owned furnace-oil GENCOs to reduce losses. - Construction started on the Dasu hydropower project. - Planned expansions include around 1300 MW in 2015 and an additional 700 MW in generation capacity in 2016. - 8.3 GW generation capacity envisaged through FDI under the CPEC over 2017-2021, with additional capacity expected later. - Power purchasing agreements with investors should be agreed in a way that mitigates potential fiscal risks. ### Governance, regulatory, and transparency improvements - NEPRA and multi-year tariffs: - 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 to NEPRA. - Petitions: FESCO petition submitted in August; IESCO and LESCO petitions completed in October. - Timeline: - Complete missed end-November 2015 SB by determining multi-year tariffs for FESCO by end-December 2015, and for IESCO and LESCO by end-January 2016 (new SB). - Multi-year tariffs for FESCO, IESCO and LESCO will be notified by end-April 2016 (new SB). - CPPA(G) and market structure: - Set up the Central Power Purchasing Agency Guarantee (CPPA(G)) and amended its Articles of Association. - Separated CPPA(G) from 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; CPPA(G) is now functional. - Policy for net metering introduced in October 2015 to allow electricity-producing consumers to sell electricity to the system. ### Energy public sector enterprise (PSE) reform - Governance and privatization: - Transferred governance of DISCOs, three GENCOs, and NTDC to new boards of directors and management. - Strengthening WAPDA’s financial capacity by allowing tariff to incorporate capital investment plans; committed to ensuring timely payments by CPPA(G) for power purchased from WAPDA Hydel. - Included several DISCOs in privatization plans with the goal of privatizing three of them in the next fiscal year (¶46). - Begun introducing competitive pricing and direct contracting between power producers and wholesale customers; necessary policies and timeline introduced through an ECC decision. ### Oil and Gas Sector — Supply and contracts - LNG and pricing actions: - First LNG imports received at the end of March 2015. - Determined and notified LNG prices on October 7, 2015. - Fully passing-through the cost of imported LNG to the end-user purchase price (including to Compressed Natural Gas); finalize contractual agreements with all relevant parties by end-November 2015. - MW&P and MoPNR finalized the RLNG payment mechanism; finalize IPP letters of credit by November 2015. - Issued new exploration and production concessions for domestic gas resources and limiting further expansion of gas distribution networks for domestic consumption. ### Gas pricing and sector reforms - 2012 Policy and concessions: - Under Petroleum Exploration and Production Policy 2012, incentivizing producers with price increases ranging from 2.8–3 U.S. dollars per MMBTU to 6–10 U.S. dollars per MMBTU. - Converted 94 concessions to the 2012 Policy; 26 remaining being reviewed in the Ministry of Petroleum and Natural Resources for eligibility. - Awarded 46 concession agreements for exploration of new blocks under the 2012 Policy; expecting to award additional 10–15 exploration concessions by end-December 2015. - Cost recovery and price notifications: - Loss in cost recovery for gas companies due to delayed price notifications of FY2014/15 was partially recuperated in the new tariff notified and implemented in line with OGRA determination in August 2015. - Remaining revenue shortfall to be recuperated in the January 2016 gas price notification. - Will adjust notified prices to reflect imported gas prices so cost is fully reflected in tariffs on a monthly basis. - GIDC and collections: - Following enactment of the GIDC Act in May 2015, recovered PRs 57 billion in FY 2014/15 and PRs 25 billion in the first quarter of FY2015/16. - Continue focusing on recovering GIDC from collecting agents that had collected the GIDC in their prices before May 2015. - Downstream restructuring: - World Bank awarded contract to consultants end June 2015 to support a study of restructuring, unbundling, and eventual privatization of two gas utility companies. - Study to recommend segregating the gas network into one transmission and multiple distribution companies, with independent profit and cost centers, and develop a mechanism for separate transmission and distribution tariffs. ### Oil and Gas governance and loss reduction - Institutional monitoring and transparency: - Established performance monitoring units in MW&P and MPNR reporting quarterly to the ECC; posting quarterly monitoring reports on websites of concerned ministries. - First two monitoring reports approved by the ECC in April 2015 and October 2015 and disclosed on the MPNR’s website. - Advertised vacant positions on OGRA Board; appointed Member Finance; re-advertised Member Oil with revised criteria. - Market access and loss reduction: - Encouraging bilateral contracting between producers and consumers; OGRA reviewing rules for third party access to the gas transmission system. - Pursuing companies to reduce losses by benchmarking international standards, investment measures, managerial and administrative improvements, and building capacity of gas distribution companies. - Current level of Unaccounted For Gas (UFG) was on average 10.3 percent in the first quarter of FY2015/16 due to commercial and technical losses. - Gas companies submitted loss reduction plans to MPNR in May 2015; Sui Southern Gas Company working with the World Bank on the Natural Gas Efficiency Project (NGEP). - Legal measures: - Gas (Theft Control and Recovery) Ordinance 2014 promulgated in January 2014; Senate approved the Ordinance and it was sent to the National Assembly which did not approve within 90 days; returned to the Senate. - Government moved to refer the law to a joint session of parliament for expected enactment before end-February 2016 (new SB). ### Improving the business climate and PSE reform - Objectives: - Improve business climate, trade regime, and PSEs to increase foreign and domestic private investment and boost economic growth. - Reform planning: - Finalized a time-bound detailed implementation plan in October 2014 identifying legislative and administrative actions, institutional roles, responsibilities, and resource requirements. - Focus on six indicators: construction permits, paying taxes, enforcing contracts, starting businesses, trading across borders, and getting credit. - Developing a new plan to overhaul efforts to significantly improve ease of doing business by end-February 2016 (new SB). ### New firm creation, contract enforcement, and paying taxes - One-Stop-Shop (OSS) for business registration: - SECP, FBR, and EOBI launched a virtual OSS in December 2014; physical OSS in Lahore in April 2015 and in Islamabad by September 2015. - Reduced two procedures and two days so far; plan to save an additional eight days of the procedures. - Bankruptcy and dispute resolution reforms: - Completed a study in March 2014 identifying changes to the bankruptcy regime. - Introducing Corporate Rehabilitation Act and CRC Act; CRC Act placed before Parliament in April 2015. - Established Alternative Dispute Resolution (ADR) mechanisms in Karachi and Lahore; extended ADR to Islamabad and Rawalpindi in September 2015; piloting commercial courts in Lahore. - Tax administration modernization: - Completed review to reduce number of processes and forms for sales and income tax by end-March 2015 (SB); identified 39 income and sales tax processes requiring elimination or streamlining. - Developed 8 IT-based modules and launched the integrated end-to-end IT solution (IRIS) on 8 processes: registration, declaration, audit/assessment, rectification, penalty, default surcharge, refunds, and exemption certificates. - Moved all internal operations to IRIS and conducting public awareness campaigns. ### Access to credit and financial inclusion - National Financial Inclusion Strategy (NFIS): - SBP issued guidelines in June 2015 to banks to facilitate opening of bank accounts for the unbanked to meet NFIS target of 50 percent adult population with bank accounts by 2020. - Commercial banks developing quarterly and yearly plans to open Asaan (“Simple Small”) Accounts and running public awareness campaigns. - Plans to strengthen financial literacy for new client groups. - Credit Bureaus Bill and implementation: - Credit Bureaus Bill enacted in August 2015 (end-November 2015 SB). - SBP to finalize regulatory and operational framework by end-February 2016. - Existing private Credit Bureaus must apply for SBP licensing by mid-October 2016 to comply with the Act. - Act will ensure credit information sharing protects privacy rights of individuals. ### Trade policy and tariff reform - Tariff simplification: - Implementing plan to simplify tariff structure over three years to a 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. - Trade preferences and relations: - Strategy to take full advantage of EU Generalized System of Preferences plus benefits extended 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. *Source: _cr1601 - 19.0 to 18.2* ### 45. Public Sector Enterprises (PSEs). We are working to reform or privatize PSEs, focusing on ### 45. Public Sector Enterprises (PSEs). We are working to reform or privatize PSEs, focusing on ### Overview - Objective: limit poor performance and improve public sector resource allocation via reform or privatization of PSEs. - Cabinet Committee on Privatization initially approved a list of 31 PSEs for action and subsequently added another 8 PSEs to the list. - A plan was developed to sequence capital market and pre-privatization restructuring for these firms. - The privatization program experienced delays, increasing the number of transactions planned for the next twelve months. - Authorities recognize implementation challenges but remain determined to implement the agenda. ### Capital Market Transactions Roadmap - Ten companies identified (listed in the TMU) in oil and gas, banking, and insurance for block sales and primary or secondary public offerings. - Completed minority stake sales: - United Bank Limited (UBL) and Pakistan Petroleum Limited (PPL) in June 2014. - Allied Bank Limited (ABL) in December 2014. - Habib Bank Limited (HBL) in April 2015. - State Life Insurance: expect to hire a financial advisor by end-December 2015. - Mari Petroleum Limited: in process of hiring a financial advisor. - Plan to finalize (as defined in the TMU) the sale of these companies’ minority shares by end-June 2016. - Pak Arab Refinery Limited (PARCO) will likely be removed from the privatization list to consider alternative options. - Authorities working to update 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 to increase value of Government’s residual shareholding. - Policy balance: aim to balance objectives of sale proceeds while addressing labor market issues and social implications. - DISCOs (Distribution Companies): - Faisalabad Electric Supply Company (FESCO): financial advisors appointed in July 2014; complete bidding process by end-June 2016 (SB); finalize transaction by end-September 2016. - Islamabad Electric Supply Company (IESCO) and Lahore Electric Supply Company (LESCO): financial advisors hired; expect approval of transaction structure in December 2015; expected completion of bidding by end-June 2016 and finalization by end-September 2016. Determination of multi-year tariffs experienced a delay. - Gujranwala Electric Power Company (GEPCO): financial advisors hired in April 2015. - Hyderabad, Peshawar, Quetta, Sukkur, and Multan Electric Supply Companies (HESCO, PESCO, QESCO, SEPCO, and MEPCO): financial advisors hired in May 2015. - Expect finalization of DISCO transactions in 2016 and 2017. - Other companies: - Heavy Electrical Complex (HEC): legal challenge ongoing after cancelled sale in May 2015 due to winning bidder’s inability to provide funds. - National Power Construction Co. (NPCC): sale completed in September 2015. - Northern Power Generation Company Limited (NPGCL): financial advisors appointed in July 2014; expect completion of bidding by end-September 2016 and finalization by end-December 2016. - Jamshoro Power Generation Company Limited (JPCL): financial advisors appointed in April 2015; bidding completion by end-September 2016 and finalization by end-December 2016. - Lakhra Power Generation Company Limited (LPGCL) and Central Power Generation Company Limited (CPGCL): financial advisors hired in May 2015; bidding completion expected by end-September 2016 and finalization by end-December 2016. - Kot Addu Power Company (KAPCO): financial advisor hired in July 2015; due diligence initiated; expected bidding completion for sale of government's equity by end-June 2016 and finalization by end-September 2016. - Plans being developed for remaining companies on the list. ### Restructuring - Restructuring plans developed for Pakistan Steel Mills (PSM) and Pakistan Railways (PR); financial advisors finalizing a plan for Pakistan International Airlines (PIA). - Pakistan International Airlines (PIA): - Financial advisors appointed in July 2014 to seek options for restructuring and strategic private sector participation in core airline business. - Due diligence completed in August 2015 showed resolution of legal challenges needed before moving forward. - Government amended the PIA Act through a Presidential Ordinance and initiated parliamentary approval in parallel. - Plan to solicit expressions of interest (EOIs) for strategic private sector participation by end-December 2015 (SB). - Pakistan Steel Mills (PSM): - Comprehensive restructuring plan approved to prepare for potential strategic private sector participation. - Operational efficiency remains well below breakeven due to gas supply difficulties. - Financial advisors hired in April 2015; due diligence completed in August 2015. - Privatization process put on hold by government decision in October 2015 to offer the provincial government hosting the PSM the opportunity to acquire the company. - Authorities expect to receive the provincial government’s final response by end-December 2015. - If provincial government declines, privatization process will resume with approval of PSM transaction structure in January 2016, bidding process completion by end-June 2016, and finalization by end-September 2016. - Pakistan Railways: - Challenges: aging and shortage of equipment, overstaffing, and large debts. - Revenue improvements: - Improved revenue in FY 2013/14 by 32 percent. - Improved revenue in FY 2014/15 by 45 percent. - Increase of around 20 percent in the first quarter of FY 2015/16. - Since April 2014, moving forward with comprehensive restructuring plan including business process and institutional framework improvements, financial stability, and service delivery. - 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: 35 new locomotives for both passenger and freight service; more than doubled revenues from freight operations. ### Key Timelines, Milestones, and Targets (selected) - Minority share sales finalization target for identified companies: by end-June 2016. - State Life Insurance financial advisor: expect hire by end-December 2015. - FESCO bidding process completion: by end-June 2016 (SB); transaction finalization by end-September 2016. - IESCO and LESCO transaction structure approval: expected December 2015; bidding completion by end-June 2016; finalization by end-September 2016. - NPGCL/JPCL/LPGCL/CPGCL bidding completion: by end-September 2016; finalization by end-December 2016. - KAPCO expected bidding completion for sale of government's equity: by end-June 2016; finalization by end-September 2016. - PIA: solicit EOIs for 26 percent of PIA's shares by end-December 2015 (SB). - PSM: provincial response expected by end-December 2015; if declined, approve transaction structure in January 2016, bidding completion by end-June 2016, finalization by end-September 2016. *Source: IMF staff report text in the provided content unit.* ### 3. Net international reserves (stock) of the SBP are defined as the dollar value of the ### _cr1601 - 3. Net international reserves (stock) of the SBP are defined as the dollar value of the ### Net international reserves (NIR) and usable reserves - NIR of the SBP: dollar value of the difference between usable gross international reserve assets and reserve-related liabilities, evaluated at the program exchange rates. - On June 30, 2015, Pakistan NIR = US$5,354 million. - Usable gross international reserves: readily available claims on nonresidents denominated in foreign convertible currencies and controlled by the monetary authorities for balance of payments financing needs, for intervention in exchange markets, and related purposes. - Components of gross official reserves: (i) holding of foreign currencies, (ii) holdings of SDRs, (iii) the reserve position in the IMF, and (iv) holdings of fixed and variable income instruments. - Excluded from usable reserves (unless paired with reserve-related liability): (i) claims on residents; (ii) assets in nonconvertible currencies; (iii) precious metals; (iv) illiquid assets; (v) assets that are pledged or collateralized. ### Reserve-related liabilities and derivative positions - Reserve-related liabilities of the SBP include all foreign exchange liabilities to residents or nonresidents, including: - foreign currency liabilities with remaining maturity of one year or less; - any foreign exchange liabilities arising from derivatives (futures, forwards, swaps, options) on a net outstanding basis (long position minus short position); - outstanding IMF credits to Pakistan; - foreign exchange deposits with the SBP of foreign governments, foreign central banks, foreign deposit money banks (excluding regulatory capital deposits of foreign banks with the SBP), international organizations, foreign nonbank financial institutions, and domestic financial institutions (excluding regulatory capital deposits of domestic financial institutions with the SBP). - Aggregate net position in 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). - SBP’s aggregate position at end-June 2015 = –US$1.7 billion. ### Reserve money (RM), net domestic assets (NDA), and net government borrowing - Reserve money (RM) defined as sum of: - currency outside scheduled banks (deposit money banks); - scheduled banks’ domestic cash in vaults; - scheduled banks’ required and excess rupee and foreign exchange deposits with the SBP; - 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 defined as: - 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 (maturity ≥ one year) 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 composition: net SBP credit to the general government + outstanding credit to domestic banks by the SBP (including overdrafts) − liabilities not included in RM − other items net. - Net government budgetary borrowing from the SBP (including provincial governments) = SBP claims on the government − 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. ### Net purchase of foreign exchange; external public debt arrears - Net purchase of foreign exchange = outright purchase of foreign exchange − outright sale of foreign exchange in the spot market, as net addition to the stock of NIR by foreign exchange market intervention. - External public debt arrears: all unpaid debt-service obligations (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 beyond 30 days after the due date. - Definition of debt for EFF purposes 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). - Ceiling on external payment arrears = zero. ### Overall budget deficit monitoring (excluding grants) - Monitored quarterly under the cash balance of the general government balance, excluding grants, including 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 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, defined as sum of project grants, cash external grants for budgetary support, capital grants reflecting principal amounts of external debt cancellation or swaps, and other grants. ### Net external program financing and net external budget financing - 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 (including any accelerated amortization related to debt swaps or debt cancellation recorded as capital grants); - 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. - Net external budget financing = net external program financing − privatization receipts − budget support grants + all other external loans for financing public projects or other federal or provincial budget expenditures + transfers of external privatization receipts from the privatization account to the budget. - Amounts projected for net external program financing and external grants are provided in Table 3 (table not reproduced here). ### Debt management risk reports - Quarterly debt management risk reports by the Debt Policy Coordination Office (DPCO) cover exposure indicators to financial risk, including: - 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; - share of short term foreign currency debt over net international reserves. ### Structural benchmarks, tax concessions, and AML amendments - Structural benchmark on hiring of six transaction advisors for end-March 2014: - Three transaction advisors to undertake sale of minority shares for three PSEs from the list of capital market transactions with at least one domestic and one international offering. - One transaction advisor for a strategic private sector participation for an electricity distribution company and one for a generation company. - One transaction advisor to undertake restructuring of Pakistan International Airlines Corp (PIAC) and seek a strategic investor. - Draft legislation to limit authority to grant tax concessions or exemptions consistent with presidential ordinance No. IX of 2015, specifying exceptional circumstances under which the Economic Coordination Committee retains authority to grant temporary exemptions: - national security, natural disaster, national food security in emergency situations, protection of national economic interests due to abnormal fluctuation in international commodity prices, removal of anomalies in duties, development of backward areas, implementation of bilateral and multilateral agreements. - “Relevant tax laws” for the structural benchmark to amend the Anti-Money Laundering (AML) Act to include serious tax crimes from relevant tax laws (end-May 2016) defined as: - Income Tax Ordinance, 2001; - the Federal Excise Act, 2005; - the Sales Tax Act, 1990; - the Customs Act, 1969; - and any other relevant law. ### Power sector payables and electricity tariff structure - 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 not recognized by NEPRA; - (iv) GST NonRefund; - (v) late payment surcharges; - (vi) delay in tariff determinations. - Current notified weighted average electricity tariff = PRs 11.45/kWh for all classes of consumers. - FY 2014/15 electricity bill notified effective June 10, 2015, includes: - (i) weighted average tariff of PRs 9.91/kWh, - (ii) rationalization surcharge of PRs 1.54/kWh, - (iii) debt servicing surcharge (DSS) of PRs 0.43/kWh, - (iv) Neelum-Jhelum Surcharge of PRs 0.1/kWh. - Notified tariff for users at 0-50 kWh/month = PRs 2/kWh (retained). - Weighted Average Notified Tariff for electricity consumers formula yields = PRs 9.91 kWh. ### Rationalization surcharge, Debt Servicing Surcharge (DSS), and Neelum-Jhelum surcharge - Rationalization surcharge PRs 1.54/kWh reflects sector operation costs not recovered through the tariff and 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) PRs 0.43/kWh covers servicing the Syndicated Term Credit Financing (STCF) and is defined as: - 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). - Calculation given: = 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 except lifeline consumption 0-50 kWh/month; contributes to financing Neelum-Jhelum Hydropower Project. ### Court stay order impact and payables monitoring - Court stay order on FY 2013/14 surcharges increased payment arrears by around PRs 37 billion for November 2014—June 2015. - Surcharges 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 ¶34): - Stock of payment arrears = PRs 326 billion (as of end-September 2015). - Stock of PHCL = PRs 335 billion (as of end-September 2015). - Flow and stock table excerpts (In Billion of Rupees) for 2015/16 and 2014/15 (values preserved as in source): - 2015/16 Q1 Target = 32; Actual Q1 flow for 2015/16 = 13 (footnote: The actual flow of payables for Q1 2015/16 was PRs 13 billion due to the impact of delayed determinations based on lower oil prices.) - Selected flow components (2015/16 Target / 2014/15 Total / 2015/16 Total): - Nonrecoveries: 16 / 37 / 104 (2015/16 Total) / 70 (2014/15) - Excess line Losses: 11 / 22 / 50 (2015/16 Total) / 44 (2014/15) - Late Payment Surcharge: 1 / 1 / 8 (2015/16 Total) / 4 (2014/15) - Delayed Determinations: 3 / 3 / 11 (2015/16 Total) / 8 (2014/15) - Total (flow) 2015/16 Target = 32; 2015/16 Total = 209; 2014/15 Total = 126 - Stock (Total stock) 2015/16 Target = 297; Actual stock end-September = 326; quarterly sequence shown: 287, 281, 282, 313 (source table retained). - Footnotes: - 1/ The actual flow of payables for Q1 2015/16 was PRs 13 billion due to the impact of delayed determinations based on lower oil prices. - 2/ All figures have been rounded to nearest whole numbers. ### Structural benchmark on DISCOs and performance targets - October 2015: quarterly quantitative targets determined by MWP and each DISCO for technical and distribution losses, and collection from current consumers. - Target Bill Collection (In percent) — selected entries (Q1 Q2 Q3 Q4 FY2015/16): - TOTAL DISCOs: 86.94 95.58 98.47 83.08 90.16 - Examples: LESCO FY2015/16 = 96.20; GEPCO FY2015/16 = 95.69; FESCO FY2015/16 = 98.47; IESCO FY2015/16 = 87.55; QESCO FY2015/16 = 57.49 - Losses target (In percent) — selected entries (Q1 Q2 Q3 Q4 FY 2015/16): - TOTAL DISCOs: 21.1 12.4 13.2 22.2 18.0 - Examples: LESCO FY2015/16 = 14.1; PESCO FY2015/16 = 34.0; HESCO FY2015/16 = 26.5 ### Finalization of privatization transactions - A transaction is “finalized” on reaching financial closure, i.e., funds from the sale are remitted to government accounts. ### Adjustors for program limits and ceilings - NIR floor adjustor: upward (downward) by 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 Asian Development Bank, Islamic Development Bank, World Bank), official bilateral creditors (including DFID, UK, USAID), external bond placements and other commercial borrowing usable for financing central government budget. - Modification: end-June 2014 calculation of the fourth review excludes proceeds of the US$2 billion Eurobond transaction; end-December 2015 and end-March 2016 calculations exclude US$500 million of external long-term market financing expected in each Q2 and Q3 of FY2015/16. Modification does not apply to subsequent reviews. - NDA ceiling adjustor: adjusted downward (upward) by cumulative excess (shortfall) of budget support loans or grants compared to program amounts (Table 3) and Euro bond issuance or project grants compared to projected inflows (Table 2). - Budget support grants: grants received by government (including provincial) for direct budget support from external donors and not related to projected financing. - Budget support loans: disbursements of loans from bilateral and multilateral donors for budget support (including provincial governments). - Consolidated overall budget deficit (excluding grants) ceilings adjustments: - For FY2014/15, adjusted upward 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, - PRs 50 billion at end-June. - For FY2014/15, adjusted downward 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, - PRs 410 at end-June. - For FY2015/16, adjusted downward for shortfall in federal development spending (excluding one-off spending included in below adjustor) below: - PRs 35 billion at end-September, - PRs 90 billion at end-December, - PRs 250 billion at end-March, - PRs 450 at end-June. - Ceiling adjusted downward for any shortfall in targeted cash transfers (BISP) and adjusted upward for over performance in the BISP up to PRS 12 billion in FY2014/15 and PRs 6 billion in FY2015/16 from their indicative targets. - In FY2015/16, ceiling adjusted upward 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). *International Monetary Fund — Pakistan: extract from _cr1601 (definitions, targets, adjustors, and measures as provided in the source content).* ### 28. Performance under the program will be monitored from data supplied to the IMF by the ### Performance monitoring and reporting requirements under the program ### Monitoring framework and general requirement - 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 below. - 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) — key data, frequency and timing - SBP balance sheet - Type of Data: SBP balance sheet Summary - Frequency: Weekly - Timing: First Thursday of the following week - SBP balance sheet (program exchange rates; and by official exchange rates) - Type of Data: 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 - Type of Data: 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 - Type of Data: By (i) program exchange rates; and (ii) at actual official exchange rates. - Frequency: Daily - Timing: The following working day - Foreign exchange market (rates and volumes) - Type of Data: 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 FX operations and intervention volumes) - Frequency: Daily - Timing: Within one day - Foreign exchange market (SBP operation against domestic currency in swap/forwards by volumes) - Frequency: Daily - Timing: Within one day - Foreign exchange market (breakdown of swap/forward contracts) - Type of Data: 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, counterparties) - Frequency: Monthly - Timing: Third working day of the following month - Net International Reserves - Type of Data: 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 (SBP-provided) - Type of Data: 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 - Type of Data: Daily interbank repo volume and interest rate of trades - Frequency: Daily - Timing: Within one day - SBP operations - Type of Data: Repo (reverse repo) operations, open market operations - Frequency: Weekly - Timing: First Monday of the following week - Bank liquidity - Type of Data: Excess reserves, in local currency - Frequency: Bi-weekly - Timing: With a lag of 15 days - T-bill and coupon bond financing, SBP securities - Type of Data: 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) - Type of 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 (required reserves) - Type of 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 - Type of Data: 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 - Type of Data: Results of stress tests on exchange rate, liquidity, and credit risk - Frequency: Quarterly - Timing: Within 60 days - Transfers - Type of Data: Workers’ remittances. - Frequency: Monthly - Timing: Within 25 days of the following month - Other monetary data - Type of 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 - Type of Data: Detailed export and import data; Detailed balance of payments data - Frequency: Monthly - Timing: Within 28 days of the end of each month - Privatization receipts - Type of Data: 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) — key data, frequency and timing - External debt - Type of Data: 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 (MOF) - Type of Data: 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 - Frequency (annual): Annual - Timing (annual): Within 180 days of the end of each year - Federal government — Fiscal financing sources - Type of Data: 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), FBR and other agencies — selected items - 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) - 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 — Monthly — Within seven days of each month - By type of tax — Monthly — Within 7 days of the end of each month - GST refund claims in arrears (for the 30 largest debtors) — Monthly — 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 - Number of refunds processed automatically; 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 — Key Power Sector Statistics (selected) - Cumulative Monthly Subsidy Position (Rs. Billion) - PEPCO Month End Payables and Receivables Positions And Aging Schedule, Rs. Billion - CPPA/PEPCO Month-wise Consolidated Cash Flow AT&C Statistics - 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: Monthly/Quarterly as specified; Timing: Quarterly Within 30 days (for working capital loans and quarterly DISCO targets) - Quarterly quantitative targets for each DISCO for technical and distribution losses, collection from current consumers and recoveries of arrears. - Domestic expenditure arrears: Energy arrears (stock); Flow of arrears by source — 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 — Frequency: Annual — Timing: Within 30 days of determination and notification - Ministry of Petroleum and Natural Resources - Gas supply, Gas prices, Gas sales by consumers - 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 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 - Ministry of Finance — Financial statements for state-owned enterprises - Financial statements (cash flow, income statement, and balance sheet) 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 ### Exchange rates (SBP table, as of June 28, 2013 in U.S. dollars per currency) - EUR130.181.31 - JPY1.010.01 - CNY16.240.16 - GBP151.801.52 - AUD92.110.92 - CAD95.040.95 - THB3.210.03 - MYR31.540.32 - SGD78.770.79 - INR1.680.02 ### Projected disbursements and external inflows — selected figures (as presented) - Projected disbursements / Gross inflows (selected row entries as listed) - Multilateral and bilateral disbursement2,9431,2701,0981,0021,9701,2221,8302,1651,5812,325 - of which: in cash 1/2,6084075437641,8106171,4571,8009691,763 - International debt issuance 2/2,00001,000005005001,000500500 - Coalition Support Fund37573507170713175175175175 - Other 3/000076400000 - Gross Inflows5,3182,0052,0981,7192,7342,4342,5053,3402,2563,000 - of which: in cash4,9831,1431,5431,4812,5741,8302,1322,9751,6442,438 - Debt service9439891,1101,8421,4221,0321,0951,2231,9131,387 - Memorandum items — reserves and program NIR (as listed) - Gross International Reserves9,0968,94310,51411,61513,53415,24715,57416,11915,99817,666 - Program Net International Reserves 1,8003,0003,5005,0007,3008,3009,3009,3009,30010,000 *Source: IMF staff table of reporting requirements and related program financial projections contained in the informational annex.* ### 1. Pakistan is among the largest recipients of World Bank financial assistance. The World Bank ### _cr1601 - 1. Pakistan is among the largest recipients of World Bank financial assistance. The World Bank ### World Bank Group program in Pakistan - The World Bank Group program in Pakistan consists of an integrated package of financial support, including IBRD lending, concessional IDA credits, Trust Funds and Grants administered by the Bank on behalf of other development partners, Multi-Donor Trust Fund (MDTF) for Khyber Pakhtunkhwa (KP), Federally Administered Tribal Areas (FATA) and Balochistan, The Accelerated Growth and Reform (TAGR) from DFID, IFC investments, and MIGA guarantees, along with complementary analytical and advisory services. - The Pakistan Portfolio (IDA, IBRD and MDTF) as of June 30, 2015, has 38 active projects. ### Country Partnership Strategy (CPS) - The Country Partnership Strategy outlines the Bank’s strategic approach to helping Pakistan achieve its development goals over a five year period. - The Bank Group’s Board of Directors endorsed a Country Partnership Strategy for Pakistan on May 1 2014, covering fiscal years 2015 through 2019. - The WBG’s Pakistan Country Partnership Strategy is anchored in the Government’s framework of 4Es: Energy, Economy, Extremism and Education; and the initial priorities of the incoming Vision 2025. - The Strategy includes flexibility to allow for quick reallocation of resources in case of unforeseen needs or emergencies. ### Four strategic pillars / result areas and cross-cutting theme - Transforming the energy sector: - Policy reforms and large investments in the power sector aim to reduce load shedding, expand low-cost generation and supply, improve governance and cut losses. - Supporting private sector development: - Support aimed at strengthening the business environment, improving competitiveness and productivity of farms and businesses, and making cities growth friendly to support productive and quality jobs. - Reaching out to the underserved, neglected, and poor: - Special focus on targeted support for poorer districts and vulnerable groups e.g. women and youth; micro, small and medium enterprises particularly in fragile and crises-affected provinces / regions; and support for enhancing resilience and adaptation to the impact of climate change. - Accelerating improvements in public service delivery: - Support efforts for increasing revenues both at the federal and provincial levels to fund public services and setting more ambitious targets to create greater impact in critical areas especially education and health. - Leveraging regional markets (cross-cutting theme): - Focuses on energy and trade, aimed at an integrated electricity market in South Asia with power transmission links to Central Asia and India; and other opportunities to capture the potential of cross-border trade between Pakistan and its neighboring countries. ### IFC and MIGA roles - IFC: - Supporting development of Pakistan’s private sector through an integrated investment and advisory program. - Strategy responds to private sector challenges including energy shortages, infrastructure constraints and lack of access to finance which limit growth of micro, small and medium enterprises (MSMEs). - Focus areas: mobilizing investments in infrastructure, energy (including renewable power), expanding access to finance to MSMEs, helping create jobs. - Advisory services: enhancing access to finance for MSMEs, capacity building of small businesses, improving corporate governance, creating a better business environment, and promoting clean energy. - MIGA: - Pakistan is a focus country for MIGA, which has provided guarantees in hydropower and microfinance. - MIGA’s strategy seeks to support investments into IDA countries, South-South investments, complex infrastructure projects, and investments into conflict-affected areas. ### Coordination with the IMF - Over the last few years, WBG has closely coordinated its development policy financing support with the IMF Program in Pakistan. - Recently completed series of operations on Fiscally Sustainable and Inclusive Growth and Power Sector Reforms supported critical structural reforms in revenue mobilization, SOEs, private sector development and energy sector reforms to complement the ongoing IMF program. - Follow-on World Bank budget support is also planned. ### IBRD/IDA financial operations since FY2006 (US$ million) - Commitments - IBRD: 315, 100, 174, 0, 0, 261, 500, 0, 0, 0 - IDA: 1183, 885, 371, 1610, 300, 1292, 1290, 744, 1634, 1351 - Disbursements - IBRD: 149, 154, 56, 91, 86, 35, 92, 85, 121, 35 - IDA: 1063, 1035, 267, 848, 698, 772, 565, 450, 1533, 1129 - Repayments - IBRD: 297, 273, 295, 273, 225, 172, 157, 162, 166, 156 - IDA: 117, 170, 143, 181, 165, 169, 190, 182, 297, 247 ### Relations with the Asian Development Bank (ADB) - Pakistan is a major recipient of financial support from the Asian Development Bank (ADB). Since 1968, the ADB has provided more than $25 billion in assistance through the concessional Asian Development Fund window and the Ordinary Capital Resources window. - The ADB’s Board of Directors endorsed the Country Partnership Strategy (CPS) covering the years 2015-2019 in August 2015. - ADB strategy aims to support the government’s objective of higher, inclusive, and sustained growth to create productive employment opportunities and reduce poverty, focusing on improving connectivity, productivity, and access to markets and public services through infrastructure development and institutional reforms. - Emphases in this CPS: (i) partnerships and cofinancing, particularly from commercial sources; (ii) disaster risk management; and (iii) a more systematic approach to knowledge solutions. - Main areas of ADB operations in Pakistan: - (i) energy, focusing on sector reforms, energy efficiency, power generation, transmission, distribution, and renewable energy development; - (ii) transport and logistics; - (iii) irrigation and water resource management; - (iv) urban services; - (v) public sector management including reforms in key sectors of ADB’s operations, development of public-private partnerships, public sector enterprise reforms and social protection; - (vi) finance, focusing on long-term sources of infrastructure finance and financial inclusion. - ADB program instruments: policy-based lending, multi-tranche financing facilities, stand-alone projects, technical assistance (TA) loans, TA grants, project design facilities, knowledge products and services, and policy dialogue. - Pakistan’s active public sector portfolio amounts to $4.68 billion as of 30 September 2015 and comprises 32 loans for 25 investment projects and 22 TA projects of $23.85 million (figures exclude ADB’s policy-based support). - Energy sector support: five annual sub-programs, with the first sub-program (DPC-I) of $400 million approved and disbursed in 2014. The second sub-program (DPC-II) of $400 million was signed on November 2015 and disbursement was made on end-November. - Sectoral composition of ADB’s active public sector portfolio: - Energy: about 48 percent - Transport: 12 percent - Irrigation and water resource management: 15 percent - Multi-sector post-flood reconstruction project: 15 percent - Social protection: 8.2 percent - Urban services: 2.8 percent - ADB private sector operations: - Began in 1983; cumulative private sector approvals amounted to $1.15 billion as of August 2015. - As of 30 June 2015, total outstanding balance of projects amounted to $584.1 million. - Private sector focus: infrastructure and finance, including renewable energy development (hydro and wind), development of natural resources, reform support, and energy security. - Under the financial sector window, ADB provides guarantees, equity investment, and trade finance. - ADB's Trade Finance Program in Pakistan has worked with ten banks on 2,996 trade transactions of over $9.4 billion, 53 percent of which was co-financed by the private sector. ### Statistical issues (As of November 18, 2015) - Assessment of Data Adequacy for Surveillance: - General: Data provision has some shortcomings, but is broadly adequate for surveillance. - National Accounts: - In 2013, the Federal Bureau of Statistics (FBS) completed rebasing and revising of the national accounts statistics from fiscal year 1999/2000 to 2005/06 to bring them in line with the concepts and definitions of the 2008 System of National Accounts (2008 SNA). - Coverage of transport, storage and communication sector expanded; methodology better captures measurement of value-added at basic prices (instead of factor cost); uses double deflation for some industries; applies Financial Intermediation Services Indirectly Measured (FISIM). - Current national accounts series goes back only to 2005/06 and the FBS was working to produce backward linking of series to 1999–2000. - FBS has begun developing quarterly national accounts (QNA). - FBS has compiled and started releasing quarterly employment/unemployment data, first release in February 2011 and included five years of historical data; investigating feasibility of disseminating data on wages/salaries. - Price statistics: - FBS produces three price indices: the CPI, the wholesale price index (WPI), and the sensitive price indicator (SPI). - CPI and WPI compiled monthly; SPI compiled weekly and consists of 53 essential commodities. - Need to replace the WPI with a producer price index (PPI). - FBS introduced COICOP with the August 2011 index, along with updated weights and expanded item and geographic coverage; TA is being provided to further improve CPI methodology and to update weights again. - Government finance statistics: - Concepts and definitions broadly based on the GFSM 1986, except that privatization proceeds are included below the line. - Scope of central government data limited because it does not cover activity of extra budgetary funds. - Classification and sectorization in source data follow GFSM 1986 standards to a limited extent. - Classification of expenditure deviates from GFSM 1986 methodology because economic and functional classifications are mixed in reporting, with defense and government administration expenditures not clearly identified according to economic classification. - Basis of recording GFS is on, or close to, a cash basis; transactions recorded on a gross basis; corrective transactions are not necessarily made in the original period. - Authorities intend to adopt GFSM 2001 methodology over the medium term and have compiled with staff assistance a fiscal table in the GFSM 2001 presentation. - Further improvements in government finance statistics are needed; authorities are making progress in the context of the Project for the Improvement of Financial Reporting and Auditing (PIFRA). - Budgetary central government operations data are regularly reported for publication in the GFS Yearbook, and use the GFSM 2001 framework; no data reported on transactions in nonfinancial and financial assets and liabilities; authorities do not report higher frequency data for inclusion in the IFS. - Monetary statistics: - Broadly in line with the Monetary and Financial Statistics Manual (MFSM) and the MFS Compilation Guide. - SBP has reported the Standardized Report Forms for central bank (1SR), other depository corporations (2SR), and monetary aggregates (5SR) to the Fund publication in the IFS. - SBP authorities and the Statistics Department are working to expand coverage to include other financial corporations (OFCs) in the monetary survey. - Pakistan reports all core Financial Soundness Indicators (FSIs) for the deposit takers (DT) sector and 16 out 28 FSIs of the encouraged set for DT, non-financial corporations and real estate prices. These FSIs (including the sectoral balance for DTs) are disseminated in the IMF’s FSI website. - Balance of payments: - Starting from September 2013 SBP reports regularly quarterly balance of payments (BoP) statistics in line with the Balance of Payments Manual sixth edition (BPM6). - SBP is regularly reporting the Currency Composition of Official Foreign Exchange Reserves (COFER), and is participating in the Coordinated Direct Investment (CDIS) and the Coordinated Portfolio Investment (CPIS) surveys. - SBP should consider reporting external debt data to the joint World Bank/IMF Quarterly External Debt Statistics Database (QEDS) and revising the reserves data template posted on the SBP website to bring it in line with international guidelines. - International investment position: - In October 2015 SBP started transmitting to the IMF BPM6 based annual and quarterly international investment position (IIP) data. - Some issues of consistency between BoP and IIP remain to be addressed. - Data Standards and Quality: - General Data Dissemination System (GDDS) participant since 2003. - The Report on the Observance of Standards and Codes (ROSC)—Data Module, a Response by the Authorities, and a Detailed Assessment Using the Data Quality Assessment Framework (DQAF) were published on the IMF website in December. *Source: _cr1601 - 1. Pakistan is among the largest recipients of World Bank financial assistance. The World Bank* ### 2004. A ROSC reassessment focusing on ### _cr1601 - 2004. A ROSC reassessment focusing on ### Data and Statistical Quality - Table of Common Indicators Required for Surveillance (As of November 2015) — latest observations and reporting frequencies reported for key macroeconomic series: - International Reserve Assets and Reserve Liabilities of the Monetary Authorities: Date of latest observation November 2015; Date received Oct. 2015; Frequency of Data M; Frequency of Reporting M; Frequency of publication M. - Reserve/Base Money: Date of latest observation November 2015; Date received Oct. 2015; Frequency of Data M; Frequency of Reporting M; Frequency of publication M. Data quality assessment: O, O, O, LO (Methodological Soundness); O, O, O, O, LO (Accuracy and Reliability). - Broad Money: Date of latest observation November 2015; Date received Oct. 2015; Frequency M/M/M. - Central Bank Balance Sheet: November 2015 / Oct. 2015 / M/M/M. - Consolidated Balance Sheet of the Banking System: November 2015 / Oct. 2015 / M/M/M. - Interest Rate: November 2015; Date received Oct, 2015; Frequency M/M/M. - Consumer Price Index: November 2015; Date received November 2015; Frequency M/M/M. Data quality assessment: O, LO, LO, O (Methodological Soundness); O, LO, O, O, O (Accuracy and Reliability). - Revenue, Expenditure, Balance and Composition of Financing – General Government: Date of latest observation Sep.2015; Date received Oct, 2015; Frequency Q/Q/Q. Data quality assessment: LO, LO, LNO, LO (Methodological Soundness); O, O, LO, LO, LO (Accuracy and Reliability). - Revenue, Expenditure, Balance and Composition of Financing – Central Government: Sep.2015 / Sep. 2015 / Q/Q/Q. - Stocks of Central Government and Central Government-Guaranteed Debt: Sep. 2015 / Sep. 2015 / Q/Q/Q. - External Current Account Balance: Sep.2015 / Oct, 2015 / M/M/M. Data quality assessment: LO, LO, LO, O (Methodological Soundness); O, O, O, O, LNO (Accuracy and Reliability). - Exports and Imports of Goods and Services: Sep.2015 / Oct, 2015 / M/M/M. - GDP/GNP: 2014/15; Date received July, 2015; A/A/A. Data quality assessment: LO, LNO, LO, LO (Methodological Soundness); LNO, LNO, O, LNO, O (Accuracy and Reliability). - Gross External Debt: Jun.2015 / Jul.2015 / M/M/M. - International Investment Position: Mar.2015; Date received Aug. 2015; A/Q A/Q A/Q. - Notes on assessments: - Methodological Soundness and Accuracy/Reliability ratings reflect the data ROSC published in December 2004 and its update published in February 2007 and mission findings for datasets corresponding to variables in each row, including monetary statistics mission during November 1–15, 2006. - Observance codes: fully observed (O), largely observed (LO), largely not observed (LNO), not observed (NO). - Frequency codes: Daily (D), Weekly (W), Monthly (M), Quarterly (Q), Annually (A), Irregular (I), Not Available (NA). ### Program Implementation - General assessment: - The EFF-supported program is in its third and final year of implementation; authorities broadly concur with staff assessment and policy recommendations. - Performance criteria and targets: - End-September 2015 performance criteria (PCs) met: net international reserves, government borrowing from the SBP, and foreign currency swap/forward position. - Indicative targets met: social spending under the Benazir Income Support Program (BISP) and accumulation of power sector arrears. - Missed: Two end-September PCs and one indicative target. Corrective measures taken. - PC on net domestic assets (NDA) missed due to: - Unusual demand for currency during two Eid festivals. - Higher volume of cash transactions following introduction of the new financial transactions tax for non-filers. - Currency injection in the interbank market to align money market rates with lowered policy rate, leading to sharp expansion in reserve and broad money. - Corrective measures brought NDA within agreed bounds for November 2015 as a prior action; revised target for end-December expected to be met. - Revenue shortfall caused the indicative target on tax revenue and the PC on the general government deficit, excluding grants, to be missed by a small margin for the first quarter. Authorities taking corrective measures and requesting waivers for nonobservance and modification of a performance criterion, and completion of the ninth review. - Structural benchmarks (SBs): - Most SBs met, including enactment of amendments to the SBP Act (prior action), enactment of the Credit Bureau Act, and setting quarterly targets for power distribution companies (DISCOs). - Modifications of existing SBs and new SBs are proposed. ### Recent Economic Developments and Outlook - Growth and inflation: - Growth projected to pick up from 4.2 percent in FY 2014/15 to 4.5 percent or more in FY 2015/16. - Headline inflation rebounded from 1.6 percent to 2.7 percent; likely to average 3.7 percent for FY 2015/16. - Fiscal and external positions: - Budget deficit reduced from 8.5 percent of GDP in FY 2012/13 to 5.4 percent of GDP in FY 2014/15; projected to reach 4.3 percent of GDP in FY 2015/16 as planned. - External current account deficit declined to 1 percent of GDP in FY 2014/15 and is projected to broadly stabilize at this level. - Reserves and external flows: - Spot purchases by the SBP helped boost gross reserves to US$ 15.7 billion (equivalent of over 4 months of imports) on December 14, 2015. - Lower oil imports and higher workers’ remittances offset weaker export performance. - Constraints: - Power shortages and security challenges adversely impacted FDI inflows. ### Fiscal Policy - Fiscal consolidation goals and measures: - Authorities committed to raising tax-to-GDP ratio to 14.5 percent in the medium-term from current level of 11 percent. - Target to reduce fiscal deficit to 3½ percent of GDP in FY 2016/17. - To offset revenue shortfall, tax measures equivalent to 0.15 percent of GDP taken. - Authorities stand ready to advance elimination of tax concessions and exemptions planned for FY 2016/17 to FY 2015/16 if needed. - Past and planned tax concession eliminations: - Eliminated concessions and exemptions equivalent to 0.9 percent of GDP in two phases, in FY 2014/15 and FY 2015/16. - Plan to continue by another 0.3 percent of GDP in FY 2016/17. - Revenue collection performance: - Average growth in FBR collections of 15.3 percent between FY 2012/13 and FY 2014/15. - In the first 5 months of the current fiscal year, revenues grew by 16.8 percent y-o-y. - Tax administration reforms and anti-corruption measures: - Measures include broadening the tax base, risk-based audits, differential taxation of filers and non-filers, integrating NTN with CNIC, legislating on benami transactions, reengineering and automating tax administration processes. - TA mission discussed possibility of single-stage GST and other tax policy options. - Strengthening Integrity Management Unit, ratification of whistle blower law for tax crimes, and beginning April 2016 public reporting of corrupt practices in tax administration planned. - Debt management: - Debt Policy Coordination Office (DPCO) strengthened with appointment of risk management staff. - Updated Medium-Term Debt Strategy for FY 2015/16– FY 2018/19 to be published by end-January 2016. - TA mission on strengthening Fiscal Responsibility and Debt Limitation Act (FRDLA) conducted; mission also discussed intergovernmental coordination and developing PPP framework. ### Monetary and Exchange Rate Policies - Policy stance and tools: - Monetary and exchange rate policies focused on price stability and boosting foreign exchange reserves. - SBP lowered the policy rate by 50 bps in September 2015. - SBP will continue forward-looking policy rate setting to maintain positive real interest rates, in line with improved interest rate corridor. - SBP enhancing analytical capacities to move towards inflation targeting in the medium term. - Amendments to SBP Act enacted by parliament to strengthen SBP independence and give legal force to independent decision-making MPC. - Exchange rate assessment: - Authorities note appreciation of the real effective exchange rate over the past two years but maintain that the rupee has been stable vis-à-vis the US dollar and that the exchange rate is market-determined. - Authorities believe export competitiveness hampered more by structural factors (energy shortages, security issues) than by the exchange rate. ### Financial Sector - Soundness indicators: - Banking sector described as sound, profitable, and highly solvent. - Capital adequacy ratio (CAR) rose to 18.2 percent in Q1 of FY 2015/16 against statutory requirement of 10 percent. - Nonperforming loans (NPLs) stable at 12.5 percent in the same period and well-provisioned. - Bank compliance: - Out of 35 banks, only one remained CAR and MCR non-compliant but expected to meet statutory requirement by end-December 2015 due to close SBP monitoring. - SBP following up with three other smaller banks to comply with MCR within time-bound plan by June 2016. - Regulatory and supervisory reforms: - Authorities working on laws and regulations to reinforce regulatory and supervisory framework. - Parliament enacted the AML/CFT law after Senate amendments; new amendments to increase scope of the law to be introduced by January 2016. - Enhancements planned for analytical capabilities of the Financial Monitoring Unit to strengthen implementation of UNSC Resolutions. ### Structural Reforms - Focus areas: - Energy sector, restructuring and privatization of public enterprises, tax administration, monetary and financial sectors. - Privatization progress: - Completed four capital market privatization transactions and one sale of strategic asset since program start. - Next 10 privatization operations remain a priority; six of these are in the power sector and require complex restructuring or legislative approvals. - Power sector reforms and impacts: - Reforms reflected in reduced outages, declining line losses, and stepped up bill collection leading to reduction in accumulation of arrears and better handling of circular debt. - Rationalization and better targeting expected to reduce power sector subsidies from 1.4 percent of GDP in FY 2012/13 to 0.3 percent of GDP in FY 2015/16 as planned. - Authorities pursuing an ambitious investment plan in the power sector with medium- and long-term focus. - Business climate and investment: - Authorities developing a time-bound plan to tackle other bottlenecks in cooperation with the World Bank; to be shared with Fund staff by end-February 2016 (SB). ### Selected Issues - Revenue potential and tax concessions: - Authorities agree with diagnostics in the Selected Issues paper on unlocking revenue potential but note the paper does not fully convey that tax concessions and exemptions are being phased out in consultation with the Fund. - Female labor force participation: - Authorities recognize importance and cultural underpinnings of increasing female labor force participation. - Quotas and representation: - Quotas for women in parliament have led to higher representation, exceeding world average. - In local bodies, representation raised to one-third. - Minimum quota of 10 percent at all levels of intake in government jobs, including mid-to-senior managerial positions. - Benazir Income Support Program (BISP): - Beneficiary households selected via poverty scorecard methodology; quarterly stipend issued to the woman of the house. - At present 5.14 million households are recipients of this stipend. - Expected to increase to 5.3 million by end of FY 2015/16. - Education-conditional cash transfer program: Of present beneficiaries, 48 percent are girls. - Authorities reintroducing gender-disaggregated budget analysis and preparing a plan for gender-responsive budgeting. ### Conclusion - Authorities’ view: - Reaching this point in the program described as challenging but rewarding given achieved macroeconomic stability from a state of near-crisis and a large repertoire of reforms yet to bear fruit. - Authorities mindful that more work is needed to entrench macroeconomic stability and put the economy on a path of stronger and more inclusive growth. - Authorities express gratitude for guidance and support of management and Executive Board. *Statement by Jafar Mojarrad, Executive Director for Pakistan and Shahid Mahmood, Senior Advisor to Executive Director — December 18, 2015.* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2016/_cr1601.pdf_