## 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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## Bibliographic details
- Published: September 4, 2013

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### 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*

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## References

- [Pakistan and the IMF](http://www.imf.org/external/country/PAK/index.htm)
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_Source: https://www.imf.org/en/news/articles/2015/09/14/01/49/pr13322_