IMF Survey : Pakistan Gets $6.6 Billion Loan from IMF

IMF News, September 4, 2013

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The IMF's Executive Board approved a $6.6 billion loan to Pakistan to support a program to stabilize the economy, boost growth, and expand the social safety net.
Program duration: 36-month program under the IMF’s Extended Fund Facility.
Rationale: Falling Central Bank foreign exchange reserves, widening fiscal deficit, relatively high inflation, structural impediments to growth, and limited access to international financial markets.

Macroeconomic stabilization: bring down inflation, reduce the fiscal deficit, and reverse balance of payments pressures.
Structural reforms: address bottlenecks in the energy sector, reform trade policy, the financial sector, and improve the business climate.
Social protection: expand targeted income support and introduce a school-attendance conditional income support component for poor families.
Complementary financing: World Bank, Asian Development Bank, and other partners offered significant financial support for adjustment and reform policies.

Instrument: Extended Fund Facility (established in 1974 for countries with weak balance of payments and chronic structural impediments).
Extended Fund Facility features: longer programs and longer maturities than Stand-By Arrangements—between 4½–10 years.
Pakistan’s program duration: three years (36 months), allowing time to implement reforms; extended repayment period to ease future repayment.

Loan amount: $6.6 billion.
Current account deficit: around 1 percent of GDP.
Foreign exchange reserves: falling to less than 1½ months of imports.
Fiscal deficit path:
- Nearly 8.5 percent of GDP last year.
- Target: 5.8 percent of GDP in 2013/2014.
- Target: 3.5 percent of GDP by the end of the program.
Growth trajectory:
- Recent average growth: 3 percent.
- Anticipated growth by end of program: vicinity of 5 percent.
Program length: 36-month program.

Fiscal measures:
- Substantially reduce tax loopholes and exemptions.
- Broaden the tax base and reduce tax evasion.
- Tightening on the fiscal and monetary sides to put the fiscal position on a sustainable path and reduce inflation.
Energy sector reforms:
- Comprehensive energy policy addressing supply, distribution, regulation, and pricing.
- Reduce energy subsidies that currently go mainly to the rich; maintain subsidies for the poorest consumers.
- Aim to encourage efficient consumption, more reliable and consistent energy delivery, and substantially reduce blackouts over the program duration.
Structural reforms:
- Trade policy reform.
- Financial sector reform to improve credit availability for private businesses.
- Improve business climate and privatize some state-owned enterprises to increase economic efficiency.
Social protection:
- Significant boost of targeted income support programs: increase number of families covered and increase benefit amounts.
- New conditional income support component for poor families tied to school attendance.

Short-term: growth may slip in the first year due to fiscal adjustment and time lags for structural reforms.
Medium-term: restoring macroeconomic stability and addressing bottlenecks expected to accelerate growth toward the vicinity of 5 percent by the end of the program.
Job creation channels:
- Reduced fiscal deficit freeing up credit for private sector borrowing and investment.
- Enhanced business environment and financial sector reforms attracting recovery of foreign direct investment.
- Structural reforms and privatization increasing economic efficiency and growth potential.

Source: IMF Survey, September 4, 2013.