Transcript of a Conference Call on Pakistan

March 28, 2014

Washington, D.C.
Friday, March 28, 2014

OPERATOR: Ladies and gentlemen, thank you for standing by. Welcome to the IMF Conference Call on Pakistan.

At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session to which all lines will be fully interactive. Should you require assistance at any time, please press the star followed by the zero on your Touch-Tone phone and an operator will assist you. As a reminder this conference call is being recorded.

I'd now like to turn the conference over to our host, Wafa Amr, Senior Communications Officer -- please go ahead.

MS. AMR: Thank you. Thank you all for joining this morning. Mr. Jeffrey Franks, Mission Chief for Pakistan, will speak to you, and then we'll take your questions. I would like to remind you that the contents of the conference call, and the documents, are under embargo until after the conference call at 10:00 a.m. Jeff, please go ahead.

MR. FRANKS: All right. Thank you, for joining us today. It's a pleasure to talk with you about the current status of the IMF Program with Pakistan.

As I'm sure that you know, we have a three-year extended fund facility arrangement with Pakistan. This Board Meeting that we had this past week, was the second review which authorized the third disbursement under the program. The disbursement was approximately $550 million. Each disbursement under this program is roughly the same size. The review is based on the targets that we had with Pakistan for end of December, and we will be conducting a Mission in about a month for the third review based on targets for end of March.

The overall economic situation in Pakistan is gradually improving. We revised in this round, our forecast for economic growth for this fiscal year of 2013, '14, from 2.8 percent to 3.1 percent. That 3.1 percent may still be a bit on the conservative side, so we see indicators of growth that are relatively strong considering the fiscal adjustment that has taken place.

Inflation has been somewhat better than we had anticipated around 8 percent currently, although we do expect some rebound in the inflation rate in the coming months.

The balance of payment situation for Pakistan has been quite difficult, and reserves were declining quite sharply during calendar year 2013. However, so far in 2014, we've begun to see a turn, with reserves beginning to turn upward. That reflects, partly, the original plan that we had, that there would be some decline in reserves in the initial six months of the IMF Program, but also reflects the fact that balance of payments conditions in the first six months were somewhat worse that we had initially anticipated.

Right now we have IMF inflows helping to boost preserves, balance of payment flows are beginning to turn more positive for the country, and of course there has been an influx of money from Gold States, which is also helping. In the coming months we expect that this trend of recovering Central Bank reserves to continue with important inflows coming from other international partners, particularly The World Bank, the Asian Development Bank, and some bilateral donors to Pakistan.

The Pakistanis are also planning to have a Euro Bond issue in the next month or so, which they are hoping could bring in several hundred additional millions of dollars of foreign exchange. And they are working hard on a privatization program, which should raise substantial additional money in the coming months.

When we reviewed the status under the program, we saw that the fiscal deficit target was observed with a substantial margin, revenues -- tax revenues are coming in roughly as we did forecast, although they are somewhat worse than was in the original Pakistan budget. But expenditures have been very tightly controlled, leaving a substantial margin of over performance on that target. This leaves us with significant confidence that by end of 2013, '14, in June, they will likely meet the deficit target for the year as a whole, brining the deficit down in the range of 5.5 percent of GDP from around 8 percent of GDP last year.

On the reserve side, I already discussed that reserves have begun to recover. The net international reserves target under the Program as net. However, there were two other smaller targets which were not met. One was a ceiling on government borrowing from the State Bank of Pakistan. They over-borrowed at the end of December, but that over-borrowing has since been rectified and we expect that they will meet that target for end March.

The other target that was met, is a target that we have to gradually reduce the State Bank of Pakistan's open swap forward position. They missed that target by a small margin but here, again, we think that they are now on track to make the target for end March.

And on the basis of the actions that the government promised to take, the IMF Board granted waivers for missing those (inaudible) months' criteria.

Let me turn briefly to the many structural reforms, which are contemplated into the program. Overall, we saw satisfactory performance by the government in pushing forward the structural reforms under the IMF Program. They are making good progress in reforms in the energy sector, and they are working hard to push forward their privatization agenda, although there do seem to be some delays in some of the key milestones along the stage to bring certain firms to the market for secondary public offerings, or initial public offerings.

We see efforts to being underway to develop proposals to broaden the tax base substantially -- excuse me -- the key issue here is eliminating a number of statutory regulatory orders, or SROs, which grant exemptions or concessions from the tax regime. The authorities have done a complete analysis of all the SROs, they are -- they have developed a list of SROs that could be eliminated, and they are currently having discussions with key stakeholders on which of those will be eliminated in the context of the 2014, '15, fiscal budget.

We have asked them to broaden the tax base by around 0.5 percent of GDP for 2014, '15 as a part of their strategy to bring the deficit down even further from the 5.5 or 5.75 percent of GDP that they will reach in this fiscal year. So, that process is underway.

Tax administration reforms are also underway, they have -- they're under -- implementing proposals to try to bring more individuals into the income tax net, and they have also prepared proposals which they are launching to increase participation in sales tax, and excise tax, and custom taxes.

They are also working on their proposals for streamlining and improving the trade tariff regime, which they are supposed to implement in the course of the next couple of years, although that proposal is not yet finalized.

Another important area of structural reform is to improve the business climate of Pakistan. Here, they are working but I think we would suggest that they could make some additional progress in trying to eliminate barriers to investment, and improve the climate for doing business to attract greater investment and generate greater economic growth.

That’s a rough summary of the overall situation, and the findings that we have in our Staff Report. So with that, perhaps I could open it up for any questions.


MS. AMR: Yes. Please go ahead if you have a question.

MS. LALUCHA: Hi, this is Lalucha here from PTI, Press Trust of India. Have you done any assessment or kind of study on the impact it would have on Pakistan economy if Pakistan gives India the status of most-favored nation?

MR. FRANKS: Yes. In fact there have been a number of academic studies in recent years on this issue. The specific results of the economic gains to Pakistan and India from normalization of trade relations, vary from one study to another. But in every study the gains are substantial for both countries. And as part of the reform of the trade regime, you may be aware that in the previous Letters of Intent, the Pakistani authorities have said that they will seek, as part of this three-year program, normalization of trade relations with India.

I think -- when I say normalization of trade relations though, I should emphasize that we don’t mean just the granting of the most-favored nation status. It's a question of opening up border crossings, eliminating non-tariff barriers, it's a comprehensive approach that the two countries would have to undertake to lower barriers to trade both tariff and non-tariff barriers. But the gains would certainly -- could certainly be substantial for both countries.

MS. LALUCHA: Is it a commitment which Pakistan has given to IMF to do the reforms next year?

MR. FRANKS: There wasn’t a specific time table on this in the Letter of Intent, what the original Letter of Intent did, we had six months ago said, was in the context of the trade reforms that Pakistan would work towards normalizing trade relations with India. I don’t think there's been any development since then over these last few months.

MS. LALUCHA: Thank you.

MR. FRANKS: You're welcome.

MS. AMR: Does anyone have any other question, please?

MR. TANDON: Sure. Could I jump in?

MS. AMR: Sure.

MR. TANDON: Thanks. This is Shaun Tandon. I'm a Journalist with AFP. You mentioned in the assessment of the security conditions that, you know, that there's been (inaudible) activity, extreme activity. The violence, the security situation; how much do you think this is a risk for the overall macro economy? Is this something that could potentially make the overall (inaudible) if there were deterioration?

MR. FRANKS: Yeah. I mean, first, let say of course, we are economists we are not security experts.

MR. TANDON: Sure. Sure.

MR. FRANKS: So I wouldn’t want to comment on the security, per se. What I would say is that if you look at countries around the world that has substantial security problems, there are clearly significant economic effects that can be suffered by those countries. So, yes, we do consider that a worsening of the security situation in Pakistan is, potentially, a relatively important risk factor going forward.

Having said that, however, what international experience also shows, is that even countries suffering very serious security problems, can have sustained economic growth, if their economic policies are right; and if they pursue those economic policies consistently over time. So, if you look around the world you'll see cases of countries that have had, you know, serious insurgency problems, or civil wars even, but have managed to maintain a relatively robust economic growth. Now, of course if they didn’t have those security problems, the robust economic growth would certainly have been even higher.

But, you know, from point of view of an economist, who is advising the Pakistani authorities on economic issues, what I would say is that regardless of the security conditions, pursuing good economic policies will bring dividends in terms of better economic reforms.

MR. TANDON: Thank you.

MS. AMR: Are there any more questions? If there are no more questions, we would like to thank you for joining. The embargo will be lifted at 10:00 a.m.

MR. FRANKS: Thank you very much, for the participants to join us as well.

OPERATOR: Ladies and gentlemen, this conference will be available for replay at 11:00 a.m. Eastern Time today, through March 29, 2014, at midnight. You may access the AT&T Executive Replay system at any time by dialing 1-800-475-6701 and entering the access code 323447. International participants may dial 320-365-3844. Those numbers again are; 1-800-475-6701 and 320-365-3844 with access code 323447.

MS. AMR: Thank you.

* * * * *


Public Affairs    Media Relations
E-mail: E-mail:
Fax: 202-623-6220 Phone: 202-623-7100