Pakistan: Glass Half Full?

IMF News, November 10, 2016

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Three-year economic reform program completed under a $6.15 billion arrangement under the IMF’s Extended Fund Facility.
Foreign exchange reserves have tripled, supported by foreign exchange purchases and external borrowing.
Fiscal deficit declined by 2½ percent of GDP (not counting a large payment to clear energy sector arrears just before the program started).
Removal of untargeted energy subsidies, removal of tax exemptions and concessions, and systematic efforts to broaden the tax net contributed to higher tax revenue.
Investment spending and social protection were increased during the program.
Enrollment in the Benazir Income Support Program has increased by 1½ million families, and stipends were raised by more than 50 percent.
Power outages have gradually decreased; financial performance in the energy sector is strengthening and accumulation of arrears has declined significantly.
Increased independence of the State Bank of Pakistan has improved the monetary policy framework.
A new comprehensive strategy to improve the business climate has been adopted and started to be implemented.

Outlook for economic growth has turned broadly favorable.
Exports and agricultural output have been declining amid a more challenging external environment and appreciating real exchange rate.
Private credit growth has been recovering.
Strong machinery imports, cement consumption, and gradually rising core inflation point to firm domestic demand.
Large-scale investment under the China Pakistan Economic Corridor is beginning to be implemented.
External financing needs are projected to increase, though without large spikes in any particular year.

Exports represent a small share of GDP and have been falling.
Investment (both public and private) remains much too low to support sustainable growth.
Social spending on health and education is well below levels seen in comparative countries.
Tax revenue collection remains much below Pakistan’s potential; widespread tax evasion persists.
Business climate and governance indicators remain sub-par.
The financial sector remains underdeveloped.
The gender gap—on human, social and economic dimensions—is among the largest in the world.
Power outages still persist despite improvements.
Financial losses of ailing public enterprises continue.
Public debt is still high.

Continued multi-year reform effort across several policy areas is required to address remaining challenges and support high and inclusive growth.
With sustained policy effort and absent major unforeseen shocks, Pakistan has a good shot at reinforcing stability gains and avoiding renewed IMF financial assistance for stabilization.
The IMF’s partnership with Pakistan will continue through policy dialogue (Article IV consultations and post-program monitoring) and capacity building.
Lessons highlighted: homegrown and widely debated economic programs improve chances of success; flexibility and agility in program implementation are important.
Public outreach during the program included op-eds, regular press conferences and conference calls, and engagement via the Resident Representative in Islamabad.

Some critics alleged political bias in national account data, conflicting claims about fiscal adjustment, that the program was anti-poor, and other criticisms.
IMF response: some arguments were described as grossly misleading (e.g., misstating size of fiscal adjustment by adding stocks and flows, alleging development spending was cut when it increased by more than 50 percent).
The IMF engaged in outreach and occasional ad hoc press statements when views were grossly misrepresented.

IMF News: Pakistan: Glass Half Full? — November 10, 2016