Press Release No. 14/217

Press Release: Statement at the Conclusion of an IMF Staff Mission to Pakistan

May 10, 2014

An International Monetary Fund (IMF) staff mission, led by Mr. Jeffrey Franks, visited Dubai during May 1-9, 2014 to conduct discussions on the third review of Pakistan’s SDR 4.393 billion (about US$6.6 billion) Extended Fund Facility (EFF), approved by the Executive Board of the IMF on September 4, 2013. The mission met with senior officials from the Ministry of Finance and the State Bank of Pakistan (SBP).  At the conclusion of the mission, Mr. Franks issued the following statement in Islamabad:

“The IMF mission held constructive discussions with government and central bank officials on the economic performance under the EFF program and is encouraged by the overall progress made in pushing ahead with policies to strengthen macroeconomic stability and reviving investment and growth. The mission reached staff-level understandings with the authorities on a set of economic policies detailed in an updated Memorandum of Economic and Financial Policies.

“Economic indicators are generally improving, with growth gaining momentum, external finance improving, and credit to the private sector rising. However, core and headline inflation are also rising. Led by large scale manufacturing and service sectors, GDP will expand by about 3.3 percent in FY 2013/14, accelerating further to reach 4 percent next year. An improvement in the balance of payments situation along with the authorities’ efforts to build up reserves are yielding tangible gains in increasing SBP reserves and stabilizing sentiment in the foreign exchange market.

“The authorities’ reform program remains broadly on track. They have met all end-March 2014 performance criteria with the exception of the target on Net Domestic Assets of the central bank, which was missed by a small margin. The indicative target on social transfers to the poor under the Benazir Income Support Program (BISP) was also met. The mission welcomes the government’s efforts to deepen its support to the poor through the BISP program, and the commitment to ensure timely payments to 4.7 million eligible families.

“Fiscal performance was strong during the first nine months of the year, but the government recognizes an emerging revenue shortfall in April and is committed to taking the necessary compensatory actions to assure attainment of the end-year deficit target. Looking forward, the mission and the authorities agreed on the key revenue and expenditure measures to achieve a further reduction in the fiscal deficit in FY2014/15. Decisive efforts to broaden the tax net and develop a more efficient and equitable tax system with adequate enforcement mechanism remain essential to provide the necessary resources to infrastructure and other critical areas such as health and education.

“The mission urged the SBP to remain vigilant on recent inflationary pressures in their monetary policy decisions, while continuing their ambitious program to rebuild reserves. For FY2014/15, the authorities should target an additional reduction in inflation towards their medium-term goal of 6-7 percent.

“The mission recognizes the authorities’ determination to pursue agreed structural reforms to enhance medium term growth prospects. Two of three structural benchmarks for this review were met, including the structural benchmark on tax administration and the benchmark on the audit of the National Electric Power Regulatory Authority (NEPRA). However, the benchmark on hiring privatization advisers was only partially met. In the energy sector, the mission urged the authorities to continue implementation of the National Energy Policy to increase energy supply while improving the financial health of the system. The mission supports the government’s ambitious privatization agenda and encourages stronger reform efforts in loss-making companies remaining in the public sector to improve resource allocation and limit poor performance. The authorities are also preparing trade policy and business climate reforms which will improve investment and economic growth.

“The mission thanks the authorities and technical staff for their cooperation and reaffirms the IMF’s support to the government’s efforts to implement their economic reforms.

“IMF staff will prepare a report on the third review that, upon management approval, is tentatively scheduled for consideration by the IMF Executive Board in late-June. If approved, the conclusion of this review would make SDR 360 million (about US$550 million) available to Pakistan.”