Press Release: IMF Executive Board Concludes 2015 Article IV Consultation with Pakistan
IMF News, January 12, 2016
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- Published: January 12, 2016
Progress since 2013
- Starting from a difficult position in 2013, Pakistan made substantial progress in reducing near-term economic vulnerabilities.
- Real GDP growth:
- 3.7 percent in fiscal year (FY) 2012/13
- 4.2 percent in FY2014/15
- Fiscal consolidation and revenue measures:
- Budget deficit lowered from 8.4 percent of GDP to 5.4 percent of GDP (partly reflecting clearance of quasi-fiscal liabilities in the energy sector in 2013).
- Efforts included reducing power subsidies and raising tax revenue.
- Monetary and financial sector:
- Monetary and financial sector policies described as prudent; the banking system remains sound.
- Inflation declined significantly, helped in part by low international commodity prices.
External position and vulnerabilities
- External current account and reserves:
- External current account deficit narrowed to one percent of GDP in FY2014/15.
- 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.
- Trade and investment:
- Foreign direct investment (FDI) fell by a half in FY2014/15, with some recovery since.
- Exports have declined.
- Competitiveness:
- Competitiveness hampered by security issues, business climate lagging regional peers, and a real effective exchange rate appreciation of 17 percent over the past two years.
- Medium-term vulnerabilities remain despite recent strengthening of the external position.
Long-standing structural impediments
- Key structural constraints to growth and investment:
- Pervasive tax evasion and prevalent tax exemptions.
- Loss-making state-owned enterprises.
- Energy sector payment arrears and insufficient capacity to meet growing demand.
- Fiscal consequences:
- Constraints on fiscal space for public investment and social spending.
- Reliance on domestic financing risks crowding out private sector access to credit and investment.
- Ongoing reforms:
- Reforms in various stages of preparation or implementation: energy sector, privatization/restructuring of public enterprises, tax administration, and monetary and financial sector policies.
Macroeconomic outlook and risks
- Medium-term outlook:
- Growth expected to reach about 5.5 percent (contingent on sustained implementation of key reforms).
- Inflation expected to gradually rebound to the SBP’s target of mid-single digits.
- Downside risks:
- More challenging external environment could pose downside risks to the outlook.
Executive Board Assessment — key messages and policy recommendations
- General appraisal:
- Directors welcomed improvements in economic activity, fiscal and external positions, attributing gains to low oil prices and strong remittances.
- Directors commended authorities for significantly reducing near-term vulnerabilities.
- Directors noted that longstanding structural weaknesses and security concerns still hold back growth.
- Fiscal policy and public debt:
- Importance of further reducing public debt to more sustainable levels while preserving room for higher spending on critical infrastructure, education, and social programs.
- Encouraged comprehensive, front-loaded revenue mobilization reforms, including:
- Base-broadening.
- Streamlining concessions and exemptions.
- Improving tax compliance.
- Enhancing coordination with provincial tax authorities.
- Need to strengthen public debt and financial management frameworks, further reduce energy subsidies, and restructure or privatize loss-making public enterprises.
- Monetary and financial sector policy:
- Monetary policy should remain prudent and focused on price stability.
- Support for targeting positive real interest rates and keeping inflation expectations well anchored.
- Commended establishment of an independent monetary policy committee.
- Encouraged further steps to enhance monetary policy transmission and to prepare for a shift toward inflation targeting over the medium term, as circumstances permit.
- Urged implementation of remaining recommendations of the 2013 safeguards assessment to enhance central bank independence and reduce fiscal dominance.
- Financial sector stability and governance:
- Banking sector remains sound and profitable with good progress on bank capitalization.
- Supported efforts to bolster regulatory and supervisory frameworks, set up a deposit insurance scheme, and improve access to finance.
- Stressed need to strengthen anti–money laundering and counter–financing of terrorism frameworks, including widening coverage of tax crimes.
- Structural reforms and competitiveness:
- Emphasized advancing reforms in energy, privatization, business climate, and trade integration to restore competitiveness and foster inclusive growth.
- Recommended greater exchange rate flexibility to help absorb exogenous shocks and complement export-improvement strategies.
- Encouraged initiatives to promote gender equality and expand targeted social protection.
Selected economic indicators and key statistics
- 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)
- Output and prices (annual percentage change):
- Real GDP at factor cost: 3.6 (2010/11), 3.8 (2011/12), 3.7 (2012/13), 4 (2013/14), 4.2 (2014/15), 4.5 (2015/16 Proj.)
- GDP deflator at factor cost: 19.5 (2010/11), 5.7 (2011/12), 7.1 (2012/13), 6.9 (2013/14), 4.7 (2014/15)
- Consumer prices (period average): 13.7 (2010/11), 11 (2011/12), 7.4 (2012/13), 8.6 (2013/14)
- Consumer prices (end of period): 13.3 (2010/11), 11.3 (2011/12), 5.9 (2012/13), 8.2 (2013/14), 3.2 (2014/15), 6 (2015/16 Proj.)
- Fiscal indicators (percent of GDP):
- Revenue and grants: 12.6 (2010/11), 13.5 (2011/12), 14.5 (2012/13), 15.4 (2013/14), 15.5 (2014/15)
- Expenditure (including statistical discrepancy): 19.6 (2010/11), 22 (2011/12), 21.9 (2012/13), 19.9 (2013/14), 19.2 (2014/15)
- Budget balance (including grants): -6.7 (2010/11), -8.6 (2011/12), -8.4 (2012/13), -4.9 (2013/14)
- Budget balance (excluding grants): -7 (2010/11), -8.9 (2011/12), -8.5 (2012/13), -5.7 (2013/14), -5.4 (2014/15), -4.3 (2015/16 Proj.)
- Primary balance: -2.9 (2010/11), -3.9 (2011/12), -0.3 (2012/13), 0.1 (2013/14)
- Total general government debt: 55.3 (2010/11), 60.5 (2011/12), 62.9 (2012/13), 63.7 (2013/14), 63.2 (2014/15), 62.4 (2015/16 Proj.)
- External general government debt: 22.4 (2010/11), 20.1 (2011/12), 18.5 (2012/13), 18 (2013/14)
- Domestic general government debt: 32.9 (2010/11), 38.1 (2011/12), 42.8 (2012/13), 43.8 (2013/14), 44.8 (2014/15), 44.4 (2015/16 Proj.), 44.2 (additional series)
- Monetary sector (annual changes in percent of initial stock of broad money):
- Net foreign assets: 4.1 (2010/11), -3.8 (2011/12), -3.4 (2012/13), 2.2 (2013/14), 1.6 (2014/15), 1.9 (2015/16 Proj.)
- Net domestic assets: 11.8 (2010/11), 17.9 (2011/12), 19.3 (2012/13), 8.8 (2013/14), 10.8 (2014/15), 10.1 (2015/16 Proj.)
- Broad money (percent change): 15.9 (2010/11), 12.5 (2011/12), 13.2 (2012/13), 12.4 (2013/14), 12 (2014/15)
- Reserve money (percent change): 17.1 (2010/11), 15.8 (2011/12), 12.9 (2012/13), 9.9 (2013/14), 10 (2014/15)
- Private credit (percent change): 7.5 (2010/11), -0.6 (2011/12), 5.6 (2012/13), 9.8 (2013/14), 10.7 (2014/15)
- Six-month treasury bill rate (period average, in percent): 12.3 (2010/11), 9.7 (2011/12)
- External sector:
- Merchandise exports, U.S. dollars (percentage change): 28.9 (2010/11), -2.6 (2011/12), 0.4 (2012/13), 1.1 (2013/14), 0.7 (2014/15), -4 (2015/16 Proj.)
- Merchandise imports, U.S. dollars (percentage change): 14.9 (2010/11), 12.8 (2011/12), -0.9 (2012/13), -0.2 (2013/14), -1.9 (2014/15)
- Current account balance (in percent of GDP): -2.1 (2010/11), -1.1 (2011/12), -1.3 (2012/13), -1 (2013/14)
- External public and publicly guaranteed debt (in percent of exports of goods and services, unless otherwise indicated): 153.4 (2010/11), 160.3 (2011/12), 144.6 (2012/13), 166.6 (2013/14), 164.5 (2014/15), 168.2 (2015/16 Proj.), 188.7 (additional series)
- Debt service: 13.4 (2010/11), 16.2 (2011/12), 21.6 (2012/13), 23.5 (2013/14), 22.5 (2014/15), 24.9 (2015/16 Proj.)
- Gross reserves (in millions of U.S. dollars) 5/: 14,784 (2010/11), 10,799 (2011/12), 6,008 (2012/13), 9,096 (2013/14), 13,534 (2014/15), 17,131 (2015/16 Proj.), 17,666 (additional series)
- In months of next year's imports of goods and services: 2.7 (2010/11), 1.5 (2011/12), 4.3 (2012/13)
- Memorandum items:
- Real effective exchange rate (annual average, percentage change): 6.1 (2010/11), 3 (2011/12), 0.9 (2012/13), 10.9 (2013/14)
- Terms of trade (percentage change): 7.3 (2010/11), -10 (2011/12), 0.3 (2012/13), 5.1 (2013/14)
- Real per capita GDP (percentage change): 1.7 (2010/11)
- GDP at market prices (in billions of Pakistani rupees): 18,276 (2010/11), 20,047 (2011/12), 22,379 (2012/13), 25,068 (2013/14), 27,384 (2014/15), 30,170 (2015/16), 29,907 (additional series)
- GDP at market prices (in billions of U.S. dollars): 213.6 (2010/11), 224.4 (2011/12), 231.1 (2012/13), 243.4 (2013/14), 267.5 (2014/15)
Press Release No. 16/05 — IMF Executive Board concluded the Article IV Consultation with Pakistan on December 18, 2015.