Press Release No. 95/66

The International Monetary Fund (IMF) today approved a 15-month stand-by credit for Pakistan equivalent to SDR 401.85 million (about $596 million) to support the Government's 1995/96 economic program.

Background

Since 1988, Pakistan has been implementing economic programs designed to achieve a comprehensive economic reform. After several years in which impressive gains were made, the effort faltered due in part to unfavorable weather conditions and political uncertainties. The authorities intensified their efforts in 1993, with IMF support, but by the first half of 1995 the situation deteriorated again, marked by growing macroeconomic imbalances due to a worsening fiscal position, accompanied by a loose monetary policy. There were also continued poor weather conditions and crop disease. As a result, the trade deficit widened, international reserves declined, and the rate of inflation remained stubbornly high.

The program for 1995/96 (July-June)

The authorities responded to these developments by initiating a broad-based economic program. The objectives of the program supported by the stand-by credit are to restore international reserves to the equivalent of 9.4 weeks of imports; to reduce inflation to 9 percent; and to accelerate real GDP growth to 5.5 percent.

To achieve these objectives, the program is designed to cut the budget deficit in relation to GDP through a combination of revenue and expenditure measures. The program also has a strong structural component to ensure a sustainable improvement in the budgetary situation. Monetary policy aims to slow the growth of domestic liquidity by tightening credit policy and interest rate measures. The authorities will continue to manage the exchange rate flexibly, seeking a balance between preserving competitiveness and containing inflationary expectations.

Structural Reforms

One of the main policy objectives in the period ahead will be to reinvigorate the structural reform process, particularly in the areas of budget reform and trade liberalization. The Government also intends to achieve further significant gains in the area of privatization.

Social Issues

The Government intends to fully protect outlays under the Social Action Program under the program, and will maintain expenditure under the Core Investment Program.

The Challenge Ahead

If rigorously implemented, the program should revive market confidence and lay the groundwork for a comprehensive medium- term program, beginning in 1996/97, that could be the basis for a return to an ESAF credit.

Pakistan became a member of the IMF on July 7, 1950; its quota¹ is SDR 758.20 million (about $1,123 million), and its outstanding use of IMF credit currently totals SDR 983 million (about $1,456 million).

Pakistan: Selected Economic Indicators   1994/95 1995/96*   (percent change) Real economic growth 4.7 5.5 Consumer price index     (end of period) 12.1 9.0     (percent of GDP) Budgetary balance     (deficit –) –5.6 –4.6 External current account, excluding official transfers     (deficit –) –4.0 –4.6   Gross reserves, excluding gold (weeks of imports) 12.9 9.4 Sources: Pakistan authorities; and IMF estimates and projections. *Program. 1. A member's quota in the IMF determines, in particular, the amount of its subscription, its voting weight, its access to IMF financing, and its share in the allocation of SDRs.