Transcript

Transcript of Conference CAll ON the completion of Article IV Consultation and the Ninth Review for Pakistan

January 13, 2016

MS. AMR: Thank you all for joining us for this conference call on the Article IV Consultation and the ninth Review for Pakistan. Mission Chief Harold Finger will give a presentation and then we'll take your questions.

MR. FINGER: Thank you very much, Wafa, and many thanks all for joining us for this conference call, both in Pakistan and abroad.

As you know, on December 18 of last year we completed the 2015 Article IV consultation and the ninth Review under the Extended Fund Facility with Pakistan which led to the disbursement for Pakistan of about $498 million. And with this, total disbursements under the arrangement have now reached about $4.98 billion.

You are also aware that the documents that you have received, as well as this call, are under embargo until 8:00 p.m. today, Islamabad time, and that is 10:00 a.m. Washington time over here.

So let me just make some brief introductory remarks before then opening it for questions and answers.

Economic growth is expected to remain robust at about four and a half percent this year, supported by services, construction, and large scale manufacturing. There are risks to the outlook from declining exports and subdued growth of bank credit to the private sector. Externally, the economic slowdown in China and in the Gulf countries also poses risks. Inflation is expected to continue normalizing, and thus rise in the near-term as the effect of past declines and food and fuel prices dissipates. That said, we see inflation expectations well anchored by prudent monetary policy.

In terms of performance under the program, while the majority of the end-September targets were met, some were unfortunately missed, including the fiscal deficit, federal tax revenue, and also the net domestic assets of the State Bank of Pakistan. Corrective measures on these have been put in place, including additional fiscal measures and an interim target for net domestic assets, which was indeed achieved.

Regarding the Article IV Consultation, we discussed the near and medium-term policy mix aimed at a further reduction of vulnerabilities along with the priorities for economic reforms to put in place strong conditions for higher rates of sustainable and inclusive growth. In this context, we agreed that reform efforts will continue to focus on strengthening public finances and external reserve buffers, and also on accelerating steps to widen the tax net, to create space for more infrastructure investment and social assistance. In addition, key priorities for growth include restructuring or privatizing loss-making public enterprises, advancing with energy sector reforms, improving the business climate, promoting gender equality, and also further expanding coverage under the Benazir Income Support Program to protect the most vulnerable. In this context, we prepared analytical work for the Article IV Consultation on unlocking Pakistan's revenue potential, competitiveness in the business climate, and on raising female labor force participation. And the corresponding papers are being released together with the Staff Report today.

So let me now open it to your questions.

QUESTIONER: Hi. Could you please talk a little bit about progress made on structural reforms like privatization, with specific reference to PIA, especially seeing what happened with the PIA Ordinance and the corporate restructuring plan that the government wanted to introduce?

And, number two, could you also speak towards the substance of the voluntary tax payer compliance program that the government is trying to launch, which is being called a tax amnesty in Pakistan? How is the IMF viewing that particular proposal in terms of its benefits and also in terms of its likelihood for passage?

MR. FINGER: Let's start on the tax scheme that you're mentioning. Here, we welcome the completion of the discussions with the traders’ community and hope that it will indeed facilitate a widening of the tax net. That said, there are some arguments for caution. International experience, for example, indicates that tax amnesty schemes can undermine tax compliance and weaken revenue collection by penalizing compliant taxpayers and potentially creating expectations also for further tax amnesties. And so we think it's very important that the current agreement is implemented in a way that minimizes these risks.

On privatization, let me just start by saying that failing to restructure or privatize these loss-making enterprises effectively would mean taking public resources away from priority spending. At the same time we need to realize that strategic privatization is a complex process that needs to be done right. And complexities often arise along the way, as we're observing now both in the cases of PIA and PSM. And this is not just the experience in Pakistan, but something we observe across our membership. So we hope that a consensus can be found in the Parliament regarding the next steps with respect to PIA, and we also plan to discuss with the authorities their intentions and upcoming plans during the next review talks.

QUESTIONER: My question is regarding the actions of the authorities in the gas sector. And one of the plan actions is regarding the gas amendment and Gas Efficiency Act. What you have reviewed in this regard with the authorities?

MR. FINGER: On the Gas Act we did not have a prior action formerly in the program, but we did agree with the authorities that they would work on the legal provisions that could strengthen collection of gas bills, and in that context they would enact the Gas Theft and Recovery Ordinance 2014 by end-February as a benchmark under the program.

QUESTIONER: I have a couple of questions. I think back to the issue raised by Mr. Khurram Hussein, on the issue of the privatization, there were two critical deadlines. First of all on the issue of the expressions of interest for investors for privatization in PIA, and this was the deadline which has been missed.

And secondly, the most important issue on FESCO, there was also a deadline to close the process of seeking statements of qualifications from the investors. And the government has not yet closed this process. Do you see these two indicators as the ones that the government is reversing on the privatization front?

And secondly, the privatization is also an important pillar of the IMF program. How do you defend your program by September this year when there will be no significant achievement on the front of privatizing the loss-making entities?

Thank you.

MR. FINGER: Thank you. We do think it's quite important to fix the underlying problem, which is that there are loss-making public entities and for which scarce resources are now being used that could be used for higher priority spending, say for infrastructure investment or social spending. So it's a real problem that needs to be solved, but at the same time privatizing these public entities through strategic sales is a quite complicated process, a complex process, and so it also needs to be done right. Rushing it through in a way that would then endanger the success of it would not really help anybody. And so we will need to continue discussing these things.

You mentioned the December benchmark on issuing expressions of interest for PIA, which was indeed missed. On FESCO, in the meantime there has been progress with the determination of the multi-year tariffs. So that we see as a promising signal, for example. So we're just going to have to see where we can go and we will discuss with the authorities in our upcoming talks the ways forward with fixing the underlying problem of the loss-making public sector entities.

QUESTIONER: It's a two-part question. The first question goes back to part of what was raised by Khurram earlier on on the tax amnesty. Pakistan's history, like many other countries, suggest tax amnesties have always undermined efforts to broaden the tax base. Do you see this as a serious risk, as many people here are arguing, to documenting the economy given that the government has repeatedly made that commitment to the IMF? And in looking at the risks, is the Fund going to raise this to the point that you would seek some possibly either reversals or adjustments beyond its present kind of form?

And the second question is that the authorities here have told us about a recovery in this year's growth and that seems to be the message coming from the Fund and from other people as well, but there seems to be also a major crisis across Pakistan's rural areas, especially in the agriculture sector, partly induced by international commodity prices and partly policy failures. And there's a list of policy failures we can get into separately. But as far as the agriculture sector is concerned, do you have any view on that part of the economy and how it's likely to perform? And do you have a message for the government in terms of addressing what appeared to be fairly serious policy gaps?

Thank you.

MR. FINGER: Thank you so much, Farhan. On the tax scheme for traders, as I mentioned, international experience indicates that tax amnesty schemes are indeed sometimes set up in ways that undermine actual tax compliance. And also that they can create expectations for future tax amnesties. And so what will be important now is to make sure that this scheme is implemented right and in a way that minimizes these kinds of risks. We also have to see that the traders have escaped the tax net for a very long time and efforts aimed at bringing these into the tax net are of course a welcome goal and we would just need to find a way to do this right in a way that minimizes the risks that we do see from other countries from some tax amnesties.

On the recovery and growth, we indeed think it is intact. We see growth of about four and a half percent this year, and further strengthening the medium-term. This is of course subject to risks, but it's also supported by strengthening in services and construction and in large scale manufacturing. Downside risks are linked to a number of factors including the slowdown in China and the Gulf countries. The Gulf countries are particularly important because of remittances.

In the agricultural area itself, I think a key development that we have to focus on is the decline in prices for raw materials and for agricultural products which is hurting particularly the rural communities. I think the farmers’ package that the government put in place last year (last calendar year) was already aimed at alleviating a bit the burden on the farmers. But beyond that we do monitor growth quite closely and we do want to make sure that this is right. And we do see as a baseline indeed a continuation of a gradual recovery.

QUESTIONER: I have two questions. First, what the authorities, Pakistani authorities, have agreed with the IMF during the ninth Review what measures they are going to take to reduce line loss in power sector?

Secondly, how does IMF see the Pakistan exchange rate at this time?

MR. FINGER: Thank you so much. Let's start on the power sector where we do have an agreement that the authorities are setting quarterly performance targets for each individual DISCO to make sure that line losses improve and collections further improve. This is part of a broader package of reforms that is tied in with the power sector Arrears Reduction Plan that was agreed earlier together also with the World Bank and the Asian Development Bank. And we have quarterly targets on accumulation of arrears, the so-called circular debt in the power sector, in the program, so we're monitoring this quite closely.

Let me also mention, in addition to this we agreed with the authorities that they would move now on strengthening the legal setting to be able to enforce the collections better. Similar to what I mentioned earlier for the gas sector, we have a benchmark in the program that the authorities will now enact the amendments to the Penal Code 1860 and the Code of Criminal Procedures 1898 by the end of January in order to be able to strengthen the collections for the power sector.

Coming to the exchange rate, we looked at this in the context of the Article IV Consultation. Let me start by saying that we think that Pakistan's nominal exchange rate should continue to be market-determined and any implied overvaluation of the real effective exchange rate can be corrected over the medium-term with continued structural reforms, gradual improvements of Pakistan's competitiveness, and also with the help of supportive policies. And when I say policies I mean monetary and fiscal particularly, and also financial sector policies.

In the context of the Article IV Consultation we performed an external sector assessment for Pakistan, and as part of that assessment we used a number of models to assess the level of the real effective exchange rate. The model estimates showed significant variation and thus they are only indicative. That said, they consistently pointed to some overvaluation and thus, by extension, to a need for a continued strengthening of export competitiveness, public finances, and also external reserve buffers.

QUESTIONER: My question goes back to state-owned enterprises, loss-making ones. And you mentioned that these are complicated transactions that can't be rushed. But my question is, since you mentioned these issues that come from the mixed consultations with the government, at what point does it start to impact the Fund's assessment of the government's willingness or capacity to actually carry out this set of reforms, especially PIA and PSM which have both been missed so far. At what point does it start to also paint the Fund's assessment of the overall policy direction of the government with regards to reform?

Thank you.

MR. FINGER: Thank you. We believe the government continues to be strongly interested in privatizing these loss-making entities as these losses constitute quasi-fiscal risks, so a potential liability that needs to be covered by scarce public resources that in our in view and the government's view can frankly be better used for higher priorities, including, say, infrastructure investment and social spending. That said, there are indeed some roadblocks and delays now on the schedule for privatizations, particularly as you mentioned with regard to PIA and PSM. We'll continue the dialogue with the authorities to find a way forward now. In PIA, I think it's important now that we come to some view on how to get consensus in the Parliamentary process now on next steps . And we continue to discuss these also with the authorities in Dubai when we meet later this month.

Similarly, on Pakistan Steel Mills, we think it's important that the discussions with the provincial government of Sindh come to some conclusion one way or the other and that the process can move forward once that decision has been made.

QUESTIONER: You have added a scenario in your report about suspension of reforms or even no reforms scenario. In your view how much are the chances that the government of Pakistan may suspend the reforms, particularly when it seems that the fiscal policy is already in the election mode as the government is (inaudible) finances to various influential lobbies?

And second, again coming back to the issue of the privatization, are there chances that the IMF may consider putting the (inaudible) privatization, or at least issuing the EOI as (inaudible)?

MR. FINGER: Thank you. With regard to the medium-term scenario that we paint in the Staff Report, we do think that the government is very committed to seeing through and continuing with the momentum on reforms, to continue on reforms that both reduce the vulnerabilities further that are in the economy, and also that put in place strong preconditions for a higher and sustainable and inclusive economic growth.

With respect to PIA, the developments that took place in Parliament subsequent to the Presidential Ordinance warrant some stock-taking and thinking, and we'll use the upcoming discussions with the government to look at potential avenues and next steps. And this is something that needs to be discussed comprehensively and something that in my mind should not be rushed because it's better to do it right than to do it quickly.

QUESTIONER: A question that I vaguely remember you were asked some months ago but a question that still baffles a lot of people here, how many waivers has Pakistan been given within the duration of this program and does that exceed the number of waivers given by the Fund to other borrowers? Because that is certainly something which is being claimed here by some very well respected economists.

MR. FINGER: Yes, thank you. There have indeed been waivers for Pakistan when needed, in cases where performance criteria were not met. We can discuss the exact number, which I don't have in front of me, and the statistics on other programs’ waivers. Part of the reason why we don't focus on that as much is that it is the overall strength of the program and the measures underlying it that are much more important than the precise number of the waivers of some conditions. Some conditions are much more essential and some conditions are met or are not met by a much larger margin than in other cases. So a numerical tally of the number of waivers I don't think gives you anything concrete, and one has to look at the total strength of the package rather than the number.

QUESTIONER: My question is regarding the borrowing policy of government. Our government is being criticized here that it is borrowing too much and ultimately the next government will have to face the consequences. What is your take on this?

MR. FINGER: Thank you so much. I think that what you're saying is absolutely right. There is still an imbalance in the economy. There is a fiscal deficit that is still higher than it should be and that of course then requires a significant amount of borrowing. That borrowing needs to come from somewhere, and, on the domestic side, it largely comes from the banks that, for one reason or another, then don't have the same incentive to lend to the private sector, which we think would be quite important to help kick-start that higher growth.

What the government has already done is that it has brought down the deficit significantly over the last two years, and as an extension of that, the borrowing needs have come down. So we think it's on the right track and we're happy that the government plans to continue on that track with continued fiscal consolidation to about 4.3 percent of GDP in the current year and more consolidation thereafter so that, over time, that imbalance can be brought down further and that the borrowing needs, by extension, can also be reduced, which is an important factor I would think that would then also enable more private sector-led growth.

QUESTIONER: My question is, as the IMF has conducted the Article IV Consolidation, and keeping in view the vulnerabilities, what is the assessment of the IMF, does Pakistan need another IMF program or what is your assessment?

MR. FINGER: Let me start by saying that the current program still runs through September of this year and that gives a significant amount of time to still discuss with the authorities what would be the next steps after the program ends. As you mentioned there are still vulnerabilities that we're pointing out and the government has already begun to address through the program and through its policy intentions on a way to continue addressing these vulnerabilities. What the precise modes of engagement will be after the program ends in September will be subject to discussion closer to the end of the program.

QUESTION: I have two questions. One is on we are seeing that open market operations, 1 billion State Bank is injecting in money market, what is your opinion? Is it corrective measures?

And second is there has been (inaudible) growth in Pakistan. We are seeing industry and agriculture is not going well.

MR. FINGER: Thank you very much. On the open market operations, let's look at those in the context of the overall monetary policy, the overrun in the net domestic assets of the Central Bank in September, which indeed was linked in some part to open market operations. There were other reasons for that as well, and it's a complex scenario that we discussed with the authorities and found a way to bring the monetary policy back on a track to one that is consistent with moderate and sustainably low inflation.

In that context, the authorities did bring down the net domestic assets by November as prior action for completion of this review, and that has continued also after November, so there is no problem on that. In abroader context, monetary aggregates are behaving well, and monetary policy remains consistent with low inflation and inflation expectations.

On the growth side, as I mentioned, we do see overall a continued gradual recovery, although in some areas, in some pockets, growth is not as fast as in others. Agriculture, as I mentioned, is indeed affected by the large fall in prices for commodities, particularly cotton prices, but also prices for other agricultural goods.

These are factors we need to look at. Over the last decade or so, poverty has come down in Pakistan, which is encouraging, but of course, the remaining poverty is still quite substantial, and it is something we take seriously, and something, with improving economic policies over time, one needs to make further inroads.

QUESTIONER: My question is about privatization and PIA. (Inaudible) to miss its deadline, what would be the fiscal impact, and if it doesn't do privatization by 2016 fiscal year, what would be the fiscal impact, and secondly, what would be its impact on the program?

MR. FINGER: Thank you. Indeed, there are delays in the privatization of PIA, as I mentioned, following the events in Parliament related to the Presidential Ordinance, which means that solicitation of expressions of interest for private sector participation will not be possible in the very near term. We will discuss a way forward with the authorities when we meet them in Dubai later this month.

Regarding the fiscal impact, in the near term, there's no fiscal impact of this, but of course, it's very important to realize that loss-making public enterprises constitute a quasi-fiscal liability, that means that at some point or another in the future, it will come back in one form or another to the budget and may require some allocation of budgetary resources for that.

Privatization, of loss-making public enterprises, I think, is quite important as it would address these issues. We just have to discuss a way forward with the authorities on the PIA and also on the other elements of the privatization agenda.

QUESTIONER: Has the IMF taken into account the implications of CPEC investment on public debt that also includes the private debt, and secondly, a follow up on the earlier question on waivers of performance criteria. Do you think that the time has come that the IMF has to say to Pakistan enough is enough?

MR. FINGER: Thank you for that. We do indeed factor into our projections any information that is already available on CPEC. Of course, the details of the terms and so on are evolving. We think it's important that information on contract terms and on these developments should be provided transparently as soon as it emerges so we can factor it in, and we are monitoring, of course, the impact on the fiscal and on the external factors in the near and medium term as well.

On the program side, as I mentioned earlier, the number of waivers is much less important than the overall strength of the program. A waiver is not a waiver. In some cases, it's a very small deviation. In other cases, it's a large deviation, or it's a deviation relative to a program that is very ambitious or not as ambitious. With just the number of waivers, you can really not be on a comparable basis to other countries.

Of course, things happen and things require a waiver at a certain moment in time, and programs, of course, need to stay flexible and also accommodate changes in economic conditions and changes in the situations on the ground. We will discuss this in the upcoming review discussions in Dubai. We will discuss ways forward with privatization and all other issues covered under the IMF program.

QUESTIONER: Just a follow up, the impression I'm getting, IMF has agreed for the waivers for the government.

MR. FINGER: Thank you. As I said, I want to get away from waivers and the number of waivers and focus on the strength of the economic program. I think if we can find a way to have in place a strong economic program that the authorities present to us and we can support, then we are in a good position to continue with the program and to end on a positive note with good accomplishments.

QUESTIONER: What is your opinion about the business climate in Pakistan?

MR. FINGER: The business climate is an area where we need to make continued efforts. If you look at the recent Doing Business report for Pakistan, it shows significant room for improvement. We discussed with the authorities when we met last time just as this report came out that there is a need to make efforts to strengthen the business climate, and they are now working together with the World Bank and other partners to develop a new plan with strategic measures to improve the business climate, which in our view is still one of the key obstacles to competitiveness and higher growth.

QUESTIONER: My last question. Again, on PIA, the government claims that there was a need to bring some legislative changes, and it said (Inaudible). How do you see the government's commitment? Do you think had the government been serious on the PIA privatization front, it would have brought it to Parliament instead of promulgating a Presidential Ordinance, and that would have resulted in less political (Inaudible) from the political parties? Thank you.

MR. FINGER: Thank you for that. There was indeed a need to amend the PIA legislation in order to allow the government to sell part of the shares to strategic private sector partners, with a view that private management would be better able to turn around the company and return it to profit making. Let's not forget that PIA once was very strong, and returning to that status is something we think would be an enormous feat, and hopefully with private sector participation in the management, that can be achieved.

On the political side of it, whether it would have been better to put in place a law or Ordinance, we leave it to the government to decide politically how they can navigate the process better. We're not experts in managing the Parliament or the politics in Pakistan. We are a partner on the economic side, trying to help on the substance of the policy rather than on the politics of getting it implemented.

QUESTION: I'd like one follow-up question. (Inaudible) this particular program, and the program is scheduled to end in 2016. We are still talking about the amount of interest the government has in its privatization program. We are talking about seeing what sort of a plan they will propose in the month of March.

It just seems to me that the government has blown past deadline after deadline, woken up rather late in the day to the timeline for the rather complicated privatization process, but the Fund just appears to be almost endorsing their delays, or at least looking past them.

There is a perception that not a whole lot has been achieved by this program, in fact. Now we are in the last year, in the closing months of this program, can I ask you what in your opinion are the biggest accomplishments of this program, other than having achieved sort of a short term stabilization of macroeconomic fundamentals, build up of reserves, which is largely on borrowed money, and the kind of influence that this government has seen. In the past, the State Bank has said in one of its reports that not since 9/11 has Pakistan seen inflows on this scale, even though many of them are debt creating.

The Musharraf Regime was able to give us good rates, in excess of 8/9 percent, with those kinds of inflows. Here we are looking at an incremental growth rate of barely one percent under the program.

What exactly in the closing months and the final year is the biggest accomplishment that this program has given us?

MR. FINGER: Thank you. Let me start by saying the structural reforms are a continuous process. They don't start and end with an IMF program, but it's a continuous process that needs to continue well after the program, and it's something that the authorities own and need to push on their own regard.

In this context, we continue to discuss ways forward on reforms that are indeed more difficult to accomplish and, to some extent, delayed.

When you ask about accomplishments under the program, let me start by mentioning stabilization. At the beginning of the program, the macroeconomic stability was indeed in danger and the country stood close to a crisis. The fiscal deficit was in excess of eight percent of GDP. Foreign exchange reserves were down to a few weeks of imports. The country was on the brink.

This government has been able to turn that around and put in place conditions that led to disappearance almost of any crisis risk and large reduction of the underlying vulnerabilities that are there by bringing down the fiscal deficit quite considerably and to increase the foreign exchange reserves also to a large extent.

In the process, some of the accomplishments we see is that the practice of financing the budget deficit through Central Bank, which is inflationary, that has been stopped. There is now very low inflation, partly, of course, also brought by low commodity prices, but underlying it, the fact that now Central Bank financing has for all intents and purposes stopped is quite encouraging for the medium term and the inflation outlook as well.

Apart from stabilization, the authorities are in the process of putting in place some pre-conditions necessary for higher growth. Let me start on the fiscal side. They have eliminated a lot of SROs, so that expenditures could be used for better purposes.

They have also put in place legislation to strictly limit the possibility for putting in place new concessions and exemptions through SROs. Another angle I can highlight is the coverage and payments under the Benazir income support program, which increased by more than 50 percent and the coverage now is more than five million people that are benefitting from that scheme.

We can go through the areas, and there has been some progress also in many other areas. In some cases, more than in others. In some cases, it has been more putting in place the preconditions or beginning some processes in cases where this takes much longer.

On privatization, let's not forget that this is a very complicated process. In some cases, successive governments have been trying to privatize companies unsuccessfully for more than a decade. We have to look again at a realistic outlook and a way to do the privatization well.

QUESTIONER: You listed some items which the IMF feels obviously are positive. In all fairness (Inaudible) by and large or maybe to a large extent the consequence of lower global oil prices rather than evidence of the government robustly going forward and putting in place bonds, which are long overdue.

One of the biggest advancements, I suppose, for want of a better word, is the record number of extensions given this year to the tax filing deadline. This has become a big joke. Compliance, according to people that know this stuff much better than I do, has never been this weak in a very long time. Given this part of the story, isn't it difficult for anyone to agree with you? I understand the IMF also has to take some diplomatic aspects of the relationship into consideration, but isn't this program or the outcome of the program in Pakistan today leaving an awful lot to be desired?

MR. FINGER: Thank you. On the fiscal side, there was indeed a significant reduction of the deficit, which came down from more than eight percent to a little bit over five percent in the last fiscal year, and is scheduled to come down to 4.3 percent this year.

One factor, of course, is the clearance of energy sector arrears that the government put in place in 2012/13, but even excluding that, there was a significant effort in bringing down the deficit.

On the side of oil prices, let us not forget that the majority of revenues that the government collects is indeed through Customs, and lower oil prices are hurting those collection efforts. They are hurting the revenue collection on that front, and that actually makes it harder for the government to meet those deficit targets.

On the tax administration side, there have been a lot of efforts by the leadership of the FBR to improve things. The international experience shows that these tax administration reforms take time. There is no silver bullet that gives you a large gain in a single year. Rather, it takes continued hard work and efforts over many years to improve things.

Among the things they have been able to achieve, let me point out they have been able to increase the number of active personal income tax filers by more than 200,000 people over the last two years. Of course, the numbers currently stands on about 970,000, which is still much below the estimated number of potential taxpayers. There is a need to continue these efforts over many years.

I could go on, the number of audits, they have been able to improve the number of audits and also the collection through audits quite significantly over the last two years.

There is progress underway, but it is just something that takes a lot of time and takes longer to be able to put in place and to close the gap on the revenue collection with other emerging market countries. Let us not forget Pakistan collects 11 percent of GDP in revenue. That is a significant improvement from where it started at the beginning of the program.

It is still much below where it could stand. Other emerging markets have revenue ratios of 15 percent, some even have 20 percent. There is thus a lot of potential still there to improve revenue collection.

QUESTIONER: Many economists say that the IMF program has hurt the Pakistani economy more than improving it, one example is that they had pushed Pakistan too hard for electricity prices… These are the drawbacks of these programs that are hurting the Pakistani economy. What is your response on this?

MR. FINGER: Thank you. On the energy side, there was a need to improve the financial performance of particularly distribution companies but also the whole power sector. When you have a sector that is operating below cost recovery, you will run into issues of circular debt, you will run into issues of utilization of existing capacity that is below the optimum.

At the beginning of the program, indeed, there was quite significant load shedding of around 8 to 10 hours a day, which has come down to well below two hours in many segments in industry. On the private consumer side, of course, it is still there with about 6 to 8 hours or so but even there we see that it has been reduced.

We do begin to see the impact. Let us also not forget the losses that accrued in the sector, the so-called circular debt, at the end of the day, that is going to be a liability that the government will have to face one way or another, so again, it takes away scarce resources that could be used for priority spending, be it for infrastructure or other things that would benefit exporters or for better social spending, which I think also is still much below its optimum in Pakistan.

The government has also been able to do these reforms at a time when global oil prices were declining, so that significantly alleviated the impact on the customers, be it end-consumers, private households, and so on, or industry.

QUESTIONER: Can I just ask one final question? I think my other colleagues seemed to have run out of questions. (Inaudible) sound awfully similar to the exchanges that we have had with the other IMF parts, especially the lines that reforms take time, and there will be a light at the end of the tunnel.

This has been going on for more than 20 years. Can we get some clarity on how long it will be before Pakistan comes out of that tunnel that we have heard about for so long?

MR. FINGER: Thank you. I do think it's a gradual process to continue working on structural reforms. It's not something that begins or ends. It is something that needs to continue with sustained efforts to put in place these conditions for higher and more inclusive growth.

I think growth can go to about 5.5 percent within a few years, which I think is quite a positive outcome. They have put in place conditions also that would allow for further reduction in poverty and have people improve their living conditions and get more jobs in the formal economy.

QUESTIONER: My question is what are the chances the government completes this program, and before that, how many governments have completed IMF programs?

MR. FINGER: Thank you so much. Pakistan's record on completing IMF programs is not stellar. Most programs have not been completed. Many have been abandoned fairly early on in the process. This government has shown its strong commitment to the program, which is a program that the government presented to us. We think chances for completing the program are quite good.

Of course, there can be roadblocks, but overall, we think the chances of completion of the program are good.

MS. AMR: Thank you very much for joining this conference call.