Press Release: IMF Executive Board Approves 3-Year, US$6.64 Billion Extended Arrangement for Pakistan

IMF News, September 4, 2013

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Press Release: IMF Executive Board Approves 3-Year, US$6.64 Billion Extended Arrangement for Pakistan

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Bibliographic details

• Published: September 4, 2013

IMF approval and financing terms

• Executive Board approved a 3-year arrangement under the Extended Fund Facility (EFF) for Pakistan equivalent to SDR 4.393 billion (US$6.64 billion, or 425 percent of Pakistan’s quota).
• Initial disbursement: SDR 360 million (about US$544.5 million).
• Remaining amount to be evenly disbursed over the duration of the program, subject to completion of quarterly reviews.

Purpose and expected macroeconomic impact

• Program goals:
  • Support the country’s economic reform program to promote inclusive growth.
  • Help the economy rebound, forestall a balance of payments crisis, and rebuild reserves.
  • Reduce the fiscal deficit and undertake comprehensive structural reforms to boost investment and growth.
  • Catalyze mobilization of resources from other donors, contingent on adherence to the program.

Key messages from Ms. Nemat Shafik, Deputy Managing Director and Acting Chair

• Pakistan faces serious economic challenges: high overall vulnerabilities and crisis risks, subpar growth, and unsustainable fiscal and balance of payments positions.
• Fiscal policy:
  • 2013/14 federal budget is an important initial step toward fiscal consolidation.
  • Important to raise the tax-to-GDP ratio, including by broadening the tax base through reduction in exemptions and concessions and extending taxation to areas not fully covered by the tax net.
  • An overhaul of tax administration is required; provinces should contribute fully to the adjustment effort.
• Monetary and exchange rate policy:
  • Should be geared to rebuilding external buffers.
  • Direct lending to the government should cease.
  • Efforts to improve independence of monetary policy need to be stepped up to pave the way for improved price stability.
• Financial sector:
  • Risks to the banking sector are manageable, but undercapitalization of vulnerable banks needs to be addressed.
• Structural reforms for sustained inclusive growth:
  • Energy policy to address long-standing sector problems.
  • Liberalize trade regime.
  • Restructure or privatize public sector enterprises.
  • Improve the business climate.
• Social protection:
  • Protecting the most vulnerable from direct and indirect impacts of fiscal consolidation and price adjustments is a priority.
  • Coverage and benefits of these programs should be expanded as savings from tariff adjustments and fiscal space are realized.

Annex — Recent developments

• Growth constraints: internal security, macroeconomic imbalances, structural energy sector problems, power outages averaging about 8-10 hours a day, floods, and difficult security situation.
• GDP growth averaged 3 percent over the past five years.
• Private domestic investment declined from 14 percent of GDP in 2007/08 to around 11 percent of GDP in 2012/13.
• Central bank reserves declined by some 45 percent in the past year; as of end June 2013, reserves stood at US$6 billion.
• Need to boost confidence to attract foreign direct investment.

Program summary and near-term measures

• Authorities have implemented key measures for a strong start:
  • Fiscal consolidation measures totaling 2 percent of GDP.
  • Adjusting electricity tariffs as part of a new comprehensive energy policy.
  • Reorienting monetary policy to rebuild foreign exchange reserves and reduce inflation.
  • Launching a decisive tax enforcement program.
• Expected outcomes of initial measures:
  • Reduce the government budget deficit to sustainable levels.
  • Reduce crowding-out of private investment.
  • Contain inflation over the medium term.

Medium-term program elements and targets

• Raise growth gradually to near 5 percent by 2015/16 as macroeconomic stability is entrenched and structural reforms are pursued.
• Bring inflation down to 6-7 percent range by 2015/16, from the current level of 8.3 percent.
• Increase central bank reserves to over 3 ½ months of imports by 2015/16.
• Reduce the fiscal deficit to 3 ½ percent of GDP by 2015/16 from an estimated 8.0 percent in 2012/13, with provincial governments contributing their fair share.
• Liberalize the trade regime and reform public sector enterprises through restructuring and/or privatization.
• Improve the business climate.
• Strengthen the tax system.
• Protect the most vulnerable from the direct and indirect impacts of reform measures.

Pakistan: Selected economic indicators and projections (highlights)

• Population: 178.9 million (2011/12)
• Per capita GDP: US$1,228 (2011/12)
• Poverty rate: 17.2 percent (2007/08)
• Main exports: Textiles ($9.9 billion)

• Output and prices (Annual percentage change)
  • Real GDP at factor cost: 2009/10: 2.6; 2010/11: 3.7; 2011/12: 4.4; 2012/13: 3.6; 2013/14 Baseline: 3.3; Program: 2.5
  • GDP deflator at factor cost: 2009/10: 10.7; 2010/11: 19.5; 2011/12: 5.3; 2012/13: 7.5; 2013/14: 7.9
  • Consumer prices (period average) 2/: 2009/10: 10.1; 2010/11: 13.7; 2011/12: 11.0; 2012/13: 7.4; 2013/14 Baseline: 8.2; Program: 8.3
  • Consumer prices (end of period) 2/: 2009/10: 11.8; 2010/11: 13.3; 2011/12: 11.3; 2012/13: 5.9; 2013/14 Baseline: 10.5; Program: 10.0
  • Pakistani rupees per U.S. dollar (period average): 2009/10: 7.6; 2010/11: 2.2; 2011/12: 4.1; 2012/13: 8.7; 2013/14: …

• Saving and investment (In percent of GDP)
  • Gross saving: 2009/10: 13.6; 2010/11: 14.2; 2011/12: 12.9; 2012/13: 12.5; 2013/14: 14.3
  • Government (saving): 2009/10: -2.4; 2010/11: -4.2; 2011/12: -5.1; 2012/13: -5.2; 2013/14 Baseline: -4.5; Program: -2.2
  • Nongovernment (including public sector enterprises): 2009/10: 16.0; 2010/11: 18.4; 2011/12: 17.9; 2012/13: 16.9; 2013/14: 16.5
  • Gross capital formation 3/: 2009/10: 15.8; 2010/11: 14.1; 2011/12: 14.9; 2012/13: 13.5; 2013/14 Baseline: 12.3; Program: 11.6

• Public finances (In percent of GDP)
  • Revenue and grants: 2009/10: 12.6; 2010/11: 13.1; 2011/12: 13.0; 2012/13: 14.4
  • Expenditure (including statistical discrepancy): 2009/10: 20.2; 2010/11: 21.5; 2011/12: 21.0; 2012/13: 20.8; 2013/14: 19.9
  • Budget balance (including grants): 2009/10: -5.9; 2010/11: -6.9; 2011/12: -8.4; 2012/13: -7.9; 2013/14 Baseline: -7.8; Program: -5.5
  • Budget balance (excluding grants): 2009/10: -6.2; 2010/11: -7.1; 2011/12: -8.8; 2012/13: -8.0; 2013/14 Baseline: -8.1; Program: -5.8
  • Primary balance: 2009/10: -1.6; 2010/11: -2.9; 2011/12: -4.0; 2012/13: -3.6; 2013/14 Baseline: -3.0; Program: -0.9
  • Total general government debt 4/: 2009/10: 61.5; 2010/11: 59.5; 2011/12: 63.8; 2012/13: 66.6; 2013/14 Baseline: 69.2
  • External general government debt: 2009/10: 30.2; 2010/11: 26.6; 2011/12: 25.8; 2012/13: 24.1; 2013/14: 23.2
  • Domestic general government debt: 2009/10: 31.3; 2010/11: 32.9; 2011/12: 38.0; 2012/13: 42.5; 2013/14: 46.1

• Monetary sector (Annual changes in percent of initial stock of broad money, unless otherwise indicated)
  • Net foreign assets: 2009/10: 0.5; 2010/11: -3.8; 2011/12: -3.4; 2012/13: -0.7; 2013/14: 3.9
  • Net domestic assets: 2009/10: 11.9; 2010/11: 19.3; 2011/12: 12.2
  • Broad money (percent change): 2009/10: 15.9; 2010/11: 17.7; 2011/12: 13.8
  • Reserve money (percent change): 2009/10: 11.4; 2010/11: 17.1; 2011/12: 13.4
  • Private credit (percent change): 2009/10: 4.0; 2010/11: -0.6; 2011/12: 8.0; 2012/13: 8.5

• External sector
  • Merchandise exports, U.S. dollars (percentage change): 2009/10: 2.9; 2010/11: 28.9; 2011/12: -2.6; 2012/13: 0.2; 2013/14: 9.6
  • Merchandise imports, U.S. dollars (percentage change): 2009/10: -1.7; 2010/11: 12.8; 2011/12: 7.3; 2012/13: 6.9
  • Current account balance (in percent of GDP): 2009/10: 0.1; 2010/11: -2.1; 2011/12: -1.0

• External public and publicly guaranteed debt (In percent of exports of goods and services, unless otherwise indicated)
  • 2009/10: 178.5; 2010/11: 153.4; 2011/12: 160.3; 2012/13: 157.3; 2013/14 Baseline: 147.8; Program: 143.7
  • Debt service: 2009/10: 20.6; 2010/11: 22.5; 2011/12: 19.4
  • Gross reserves (in millions of U.S. dollars) 5/: 2009/10: 12,958; 2010/11: 14,784; 2011/12: 10,799; 2012/13: 6,008; 2013/14 Baseline: 2,283; Program: 9,566
  • In months of next year's imports of goods and services: 2009/10: 2.7; 2010/11: 1.4

• Memorandum items:
  • Real effective exchange rate (annual average, percentage change): 2009/10: 0.9; 2010/11: 6.1; 2011/12: -4.8; 2012/13: -7.7
  • Terms of trade (percentage change): 2009/10: 1.8; 2010/11: 7.0; 2011/12: -9.6; 2012/13: -0.4; 2013/14 Baseline: 1.0; Program: -0.1
  • Real per capita GDP (percentage change): 2009/10: 1.5; 2010/11: 2.3; 2011/12: 1.3
  • GDP at market prices (in billions of Pakistani rupees): 2009/10: 14,867; 2010/11: 18,285; 2011/12: 20,091; 2012/13: 22,909; 2013/14 Baseline: 25,415; Program: 25,351
  • GDP at market prices (in billions of U.S. dollars): 2009/10: 177.6; 2010/11: 213.7; 2011/12: 225.6; 2012/13: 236.5; 2013/14 Baseline: 235.6; Program: 229.9

• Notes:
  • Fiscal year ends June 30.
  • Inflation after 2009/10 based on new CPI weights, recalculated in September 2011.
  • Including changes in inventories. Investment data recorded by the Pakistan Bureau of Statistics are said to underreport true activity.
  • Excludes military debt, and commercial loans.
  • Gross reserves excluding gold and foreign currency deposits of commercial banks held with the State Bank of Pakistan.
  • Please note changes in US Dollar amounts adjusted to today’s exchange rate.

IMF Communications Department — Press Release No. 13/322, September 4, 2013

References

• Pakistan and the IMF
• Press Releases
• PRESS CENTER
• https://www.imf.org/en/home