Press Release No. 11/71

Press Release: Statement by an IMF Mission on Pakistan

March 11, 2011

An International Monetary Fund (IMF) mission, led by Mr. Adnan Mazarei, visited Islamabad during March 1–11, 2011. At the conclusion of its work today, Mr. Mazarei issued the following statement:

“The IMF mission held constructive discussions with government and central bank officials on the recent developments, the outlook for Pakistan’s economy for the rest of FY 2010/11 and 2011/12,¹ and on economic policies to restore macroeconomic stability in the context of the improved external current account and international reserves. We also discussed structural reforms to strengthen public finances and the financial sector.”

“Discussions on economic stabilization focused on addressing inflation, containing the budget deficit, reviving growth, and meeting the challenge posed by higher international oil prices. There was agreement on the need to reduce the budget deficit in the current financial year. The mission welcomed the recent expenditure restraint and tax policy and enforcement measures being considered by the government to mobilize additional revenue. These measures, if implemented promptly and consistently, will help to improve the budgetary position. The mission also welcomes the government’s efforts to lower recourse to State Bank of Pakistan (SBP) borrowing since late-December.”

“Further, expenditure prioritization needs to protect pro-poor spending and flood assistance and reconstruction efforts. Moreover, a binding agreement will be needed with provinces on their budgetary positions to assure attainment of the deficit target. Given the large domestic borrowing needs, the Ministry of Finance needs to improve debt management. Looking ahead, significant fiscal consolidation will be needed in 2011/12 in order to reduce inflation and ensure debt sustainability. The lower budget deficit would also help manage the impact of higher oil prices on the economy.”

“The budget deficit and quasi-fiscal operations have contributed to a loosening of monetary conditions thus adding to inflationary pressures. To help counter these pressures, credit to the budget from the SBP should be reduced further. Moreover, the banking sector needs careful monitoring, given the high and rising level of nonperforming loans.”

“Further, to lay the basis for higher and broad-based economic growth, tax reforms, reduction of poorly targeted subsidies, and financial sector reforms are needed to improve governance and promote higher savings, investment and growth.”

“The IMF remains committed to the ongoing dialogue with the Pakistani authorities, and will continue discussions on their reform program.”

¹ Pakistan’s financial year runs from July 1 to June 30.