{
  "title": "Public Information Notice: IMF Executive Board Concludes 2007 Article IV Consultation with Pakistan",
  "publication": "IMF News, December 20, 2007",
  "sourceUrl": "https://www.imf.org/en/news/articles/2015/09/28/04/53/pn07143",
  "canonical": "https://www.imf.org/en/news/articles/2015/09/28/04/53/pn07143",
  "overlayPath": "/en/news/articles/2015/09/28/04/53/pn07143/index.md",
  "summary": "Each Public Information Notice contains a background section, a table of selected economic indicators, and an Executive Board assessment.",
  "publishDate": "2007-12-20",
  "sections": [
    {
      "heading": "Background",
      "content": "- On December 17, 2007, the Executive Board of the International Monetary Fund (IMF) concluded the 2007 Article IV consultation with Pakistan.\n- Since 2001/02 Pakistan experienced a turnaround: sound macroeconomic management and wide-ranging structural reforms contributed to high real GDP growth, a reduction in the debt burden, and an improved business climate.\n- Adherence to pro-poor policies helped lower poverty rates.\n- Increasingly, Foreign Direct Investment (FDI) and portfolio flows became an important source of external financing."
    },
    {
      "heading": "Economic developments during fiscal year ending June 2007",
      "content": "- Real GDP growth increased to 7 percent, with a recovery in agriculture and strong performance of large-scale manufacturing and services.\n- Average inflation persisted near 8 percent; the disinflation process slowed somewhat.\n- The current account deficit widened for the third consecutive year, reaching 4.9 percent of GDP (US$7 billion) in 2006/07.\n- Overall, gross official reserves increased by US$3.5 billion, to US$14.3 billion by end-June 2007.\n- Net details and market indicators:\n  - The rupee fluctuated within a narrow band against the U.S. dollar; the real effective exchange rate remained broadly stable.\n  - The stock market recovered from losses suffered in early November 2007.\n  - The J.P. Morgan Emerging Markets Bonds Index Global spread for Pakistani international bonds over 10-year U.S. Treasuries was 400 basis points as of December 14, compared with 214 basis points at end-June."
    },
    {
      "heading": "Monetary, financial, and fiscal developments",
      "content": "- Monetary:\n  - Lending to the government by the State Bank of Pakistan (SBP) ceased in 2006/07.\n  - Reserve money and broad money grew by about 20 percent, driven by accumulation of international reserves and lending to commercial banks for subsidized credit to the textile industry.\n  - SBP offloaded some holdings of treasury bills to commercial banks for the first time in four years.\n  - Commercial banks' credit to government picked up, offsetting a deceleration in credit to the private sector to 17 percent, from 23 percent a year earlier.\n- Fiscal:\n  - The fiscal stance was broadly unchanged in 2006/07; the fiscal deficit (excluding grants) was estimated at 4.3 percent of GDP, the same as in 2005/06.\n  - Current expenditure overruns were fully offset by a strong performance of revenues (especially nontax) and underspending on investment projects.\n  - The deficit was financed roughly equally from external and domestic sources.\n  - The public debt ratio declined by an additional 3 percentage points to about 55 percent of GDP.\n- Structural and sectoral reforms:\n  - Privatization progress was mixed; sale of Pakistan Steel Mills was annulled by the Supreme Court in June 2006, but placements of Global Depository Receipts proceeded.\n  - Electricity tariffs were adjusted by 10 percent in February 2007, unlocking World Bank loans and paving the way for greater private participation in electricity generation.\n  - Regulations regarding broker financing of share trades were strengthened.\n  - Authorities were working on their second Poverty Reduction Strategy Paper, expected to be completed by the spring of 2008."
    },
    {
      "heading": "Developments and outlook for 2007/08 (authorities' program and early indicators)",
      "content": "- Authorities' program envisages:\n  - Real GDP growth of 7.2 percent for 2007/08.\n  - Budget deficit target set at 4 percent of GDP.\n  - SBP announced tighter monetary conditions to slow broad money growth to 13.7 percent by end-2007/08 (in its July Monetary Policy Statement).\n- Early 2007/08 indicators:\n  - Provisional data showed continued strong growth in large-scale manufacturing in Q1 2007/08.\n  - The 12-month rate of inflation was 8.7 percent in November 2007, owing mainly to increase in food prices.\n  - Preliminary SBP data for July-October 2007 suggested the current account deficit narrowed relative to the same period of last year, with export growth recovering and remittances showing a strong increase.\n  - Net international reserves fell by US$1 billion since end-June 2007, to US$13.3 billion as of December 14, 2007; decline concentrated in November due to large oil and debt payments and some portfolio outflows.\n  - The fiscal position deteriorated in Q1 2007/08 relative to Q1 2006/07, due mainly to strong growth of development spending and higher than envisaged interest payments and energy subsidies.\n  - During July-September 2007 domestic financing of the government was provided mainly by commercial banks; starting in October SBP's financing of the government increased markedly as commercial banks reduced their demand for treasury bills."
    },
    {
      "heading": "Executive Board Assessment — key findings and recommendations",
      "content": "- Directors' assessment of 2006/07 performance:\n  - Welcomed strong performance: increased real GDP growth, strengthened international reserves, and declining debt ratios.\n  - Noted persistent vulnerabilities: relatively high inflation, widened external current account deficit, and large external financing needs.\n  - Emphasized need for continued vigilance to reduce vulnerabilities and maintain investor confidence given political uncertainties and global credit market developments.\n- Policy priorities and recommendations:\n  - Main challenge: maintain high growth while lowering inflation and reducing external current account deficit to a more sustainable level.\n  - Required policy stance: continued tight fiscal and monetary policies.\n  - Fiscal policy:\n    - Encourage authorities to strengthen the fiscal program for 2007/08 to complement monetary tightening, particularly by reducing energy subsidies and capital spending.\n    - Further fiscal consolidation beyond 2007/08 is needed to reduce inflation and the external current account deficit while lessening pressures on real interest rates.\n    - Noted low ratio of tax revenue to GDP; recommended pressing ahead with reforms to increase revenue so the fiscal deficit can be reduced while boosting spending on infrastructure and poverty alleviation.\n    - Recommended broadening the tax base, including expanding taxation of the agricultural and services sectors and reducing tax exemptions.\n    - Supported use of public-private partnerships in infrastructure, while cautioning that contingent liabilities should be fully identified and incorporated in the budget.\n  - Monetary and exchange rate policy:\n    - Welcomed monetary tightening since mid-2007.\n    - Regretted re-emergence of central bank financing of the budget; stressed need to adjust interest rates in treasury bill auctions as needed so the government's 2007/08 domestic borrowing requirement is fully met through commercial banks or nonbank institutions.\n    - Many Directors called for greater exchange rate flexibility to enhance monetary policy effectiveness and absorb external shocks; some Directors preferred exchange rate stability to maintain investor confidence at this juncture.\n    - Agreed that real effective exchange rate is broadly in line with Pakistan's fundamentals.\n  - Structural reforms and financial sector:\n    - Encouraged vigorous implementation of structural reforms to sustain growth and poverty reduction.\n    - Urged modernization of the energy sector's regulatory and tariff framework and revival of the privatization process.\n    - Recommended reducing subsidized central bank credit to certain sectors and disengaging the central bank from development financing to deepen domestic financial markets and enhance efficiency of financial intermediation.\n    - Supported moving from short-term government financing instruments to long-term securities.\n    - Urged action to strengthen public financial management.\n    - Encouraged resisting pressures to reinstate ad hoc tariff and nontariff barriers and to press ahead with plans for further trade liberalization.\n  - Anti–money laundering/terrorism financing:\n    - Welcomed recent enactment of regulations governing legislation to combat money laundering and terrorism financing.\n    - Underscored need to obtain parliamentary approval of such legislation, make the Financial Monitoring Unit fully operational, and clarify related reporting and accountability issues."
    },
    {
      "heading": "Pakistan: Selected Economic Indicators, 2002/03–2006/07 (highlights)",
      "content": "- Output and prices:\n  - Real GDP at factor cost (percentage change): 2002/03: 4.7; 2003/04: 7.5; 2004/05: 9.0; 2005/06: 6.6; 2006/07: 7.0\n  - Consumer prices (period average; percentage change): 2002/03: 3.1; 2003/04: 4.6; 2004/05: 9.3; 2005/06: 7.9; 2006/07: 7.8\n  - Consumer prices (end of period; percentage change): 2002/03: 1.9; 2003/04: 8.5; 2004/05: 8.7; 2005/06: 7.6; 2006/07: (not reported)\n  - Gross national saving (percent of GDP): 2002/03: 21.6; 2003/04: 18.4; 2004/05: 17.7; 2005/06: 18.0; 2006/07: (not reported)\n  - Gross capital formation (including changes in inventories; percent of GDP): 2002/03: 16.8; 2003/04: 16.6; 2004/05: 19.1; 2005/06: 21.7; 2006/07: 23.0\n  - GDP at market prices (in billions of Pakistani rupees): 2002/03: 4,876; 2003/04: 5,641; 2004/05: 6,500; 2005/06: 7,594; 2006/07: 8,707\n- Public finances:\n  - Revenue (including grants, percent of GDP): 2002/03: 17.2; 2003/04: 14.6; 2004/05: 14.1; 2005/06: 14.8; 2006/07: 15.2\n  - Expenditure (including statistical discrepancy, percent of GDP): 2002/03: 18.5; 2003/04: 16.4; 2004/05: 19.2; 2005/06: (not reported); 2006/07: (not reported)\n  - Budget balance (excluding grants, percent of GDP): 2002/03: -3.8; 2003/04: -2.3; 2004/05: -3.3; 2005/06: -4.3; 2006/07: (not reported)\n  - Primary balance (including grants, percent of GDP): 2002/03: 2.9; 2003/04: 1.7; 2004/05: 0.2; 2005/06: -0.6; 2006/07: (not reported)\n  - Total government debt (percent of GDP): 2002/03: 74.5; 2003/04: 67.8; 2004/05: 62.9; 2005/06: 57.3; 2006/07: 54.6\n- Monetary sector:\n  - Net foreign assets (change in percent of broad money): 2002/03: 17.5; 2003/04: 2.1; 2004/05: 2.2; 2005/06: 2.5; 2006/07: 8.1\n  - Net domestic assets (change in percent of broad money): 2002/03: 0.5; 2003/04: 17.1; 2004/05: 12.4; 2005/06: 11.3; 2006/07: (not reported)\n  - Broad money (annual change; in percent): 2002/03: 19.6; 2003/04: 19.3; 2004/05: 14.9; 2005/06: (not reported); 2006/07: (not reported)\n  - Private credit (annual change; in percent): 2002/03: 18.9; 2003/04: 29.8; 2004/05: 33.2; 2005/06: 23.2; 2006/07: (not reported)\n  - Six-month treasury bill rate (period average; in percent): 2002/03: 4.1; 2003/04: 8.2; 2004/05: 8.8; 2005/06: (not reported); 2006/07: (not reported)\n- External sector:\n  - Merchandise exports, U.S. dollars (growth rate; in percent): 2002/03: 20.1; 2003/04: 13.5; 2004/05: 16.2; 2005/06: 14.3; 2006/07: 3.2\n  - Merchandise imports, U.S. dollars (growth rate; in percent): 2002/03: 21.2; 2003/04: 38.3; 2004/05: 31.7; 2005/06: 8.0; 2006/07: (not reported)\n  - Current account including official current transfers (percent of GDP): 2002/03: 4.9; 2003/04: 1.8; 2004/05: -1.4; 2005/06: -3.9; 2006/07: -4.9\n  - External public and publicly guaranteed debt (in percent of exports of goods and services): 2002/03: 229.0; 2003/04: 209.5; 2004/05: 183.7; 2005/06: 167.8; 2006/07: 169.2\n  - Gross reserves (in millions of U.S. dollars): 2002/03: 9,529; 2003/04: 10,564; 2004/05: 9,805; 2005/06: 10,760; 2006/07: 14,287\n  - Gross reserves (in months of next year's imports of goods and services): 2002/03: 6.5; 2003/04: 5.0; 2004/05: 3.5; 2005/06: 3.7; 2006/07: 4.5\n  - Pakistani rupees per U.S. dollar (period average): 2002/03: -4.7; 2003/04: -1.5; 2004/05: 0.8; 2005/06: 1.3; 2006/07: (not reported)\n  - Real effective exchange rate (annual average, percentage change): 2002/03: -0.1; 2003/04: -1.8; 2004/05: 0.3; 2005/06: 5.3\n\nPublic Information Notice (PIN) No. 07/143 — IMF Executive Board Concludes 2007 Article IV Consultation with Pakistan\n\n---\n\n\n References\n\n- Pakistan and the IMF\n- Public Information Notices\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2015/09/28/04/53/pn07143"
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    "Published: December 20, 2007",
    "On December 17, 2007, the Executive Board of the International Monetary Fund (IMF) concluded the 2007 Article IV consultation with Pakistan.",
    "Since 2001/02 Pakistan experienced a turnaround: sound macroeconomic management and wide-ranging structural reforms contributed to high real GDP growth, a reduction in the debt burden, and an improved business climate.",
    "Adherence to pro-poor policies helped lower poverty rates.",
    "Increasingly, Foreign Direct Investment (FDI) and portfolio flows became an important source of external financing.",
    "Real GDP growth increased to 7 percent, with a recovery in agriculture and strong performance of large-scale manufacturing and services.",
    "Average inflation persisted near 8 percent; the disinflation process slowed somewhat.",
    "The current account deficit widened for the third consecutive year, reaching 4.9 percent of GDP (US$7 billion) in 2006/07.",
    "Overall, gross official reserves increased by US$3.5 billion, to US$14.3 billion by end-June 2007.",
    "Net details and market indicators:",
    "Monetary:",
    "Fiscal:",
    "Structural and sectoral reforms:",
    "Authorities' program envisages:",
    "Early 2007/08 indicators:",
    "Directors' assessment of 2006/07 performance:",
    "Policy priorities and recommendations:",
    "Output and prices:",
    "Public finances:",
    "Monetary sector:",
    "External sector:",
    "[Pakistan and the IMF](http://www.imf.org/external/country/PAK/index.htm)",
    "[Public Information Notices](https://www.imf.org/en/news/searchnews)",
    "[https://www.imf.org/en/home](https://www.imf.org/en/home)"
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