Though Pakistan missed its important quantitative performance criteria on the fiscal deficit and the government borrowing from the central bank as the provinces could not give the agreed surplus, the International Monetary Fund (IMF) mission on Friday approved release of the next tranche of $ 502 million due to the slippages resulting from the un-budgeted expenditure for the temporarily displaced persons (TDPs), Zarb-e-Azb operational expenses and flood relief measures.
An International Monetary Fund (IMF) staff mission led by Harald Finger conducted discussions on the eighth review of Pakistan’s economic programme supported by a three-year IMF Extended Fund Facility (EFF) during July 29-August 7 in Dubai. The IMF team met with Finance Minister Ishaq Dar, State Bank of Pakistan (SBP) Governor Ashraf Wathra, and other senior officials.
A statement issued at the conclusion of the mission said: “We welcome the authorities’ commitment and progress in implementing their economic programme to improve economic resilience, promote economic growth and private sector job creation. After productive discussions, the mission and the Pakistani authorities have reached staff-level agreement on the completion of eighth review under the EFF arrangement. The agreement is subject to approval by the IMF management and the executive board. Upon completion of this review, about $502 million will be made available to Pakistan.”
It said the budget deficit was reduced to 5.3 per cent of the GDP in the financial year (FY) 2014-15 as compared to fiscal deficit of 5.5 percent of GDP in FY 2013-14. While the indicative target on tax revenue was missed by a small margin, the revenue collection for FY 2014/15 improved by around 15 per cent as compared to the last financial year.
Pakistan’s economy continues to improve:
Real GDP growth is expected to increase to 4.5 percent this fiscal year, helped by macroeconomic stability, low oil prices, planned improvements in the domestic energy supply, and investment related to the China-Pakistan Economic Corridor, it noted.
Inflation dropped to 1.8 percent in July, but is expected to increase in the coming months with the anticipated stabilization of commodity prices. Despite declining exports, the external current account deficit narrowed to 0.8 percent of GDP in FY 2014/15 owing to favorable oil prices and strong growth of remittances. Foreign exchange reserves of the SBP continued to increase at a healthy pace, and reached US$13.5 billion at end-June 2015, covering three months of imports.
The authorities have continued to make good progress in implementing their economic programme, although some targets were missed. All end-June 2015 programme targets related to monetary policy were met, in some cases with a significant margin. However, the end-June 2015 performance criteria on the budget deficit and government borrowing from the SBP were missed with a small margin. In addition, the indicative targets on tax revenue and accumulation of circular debt deviated from end-June 2015 program targets. The mission welcomes the authorities’ commitment to attain upcoming budget deficit and tax revenue targets, diversify sources of budget financing, and strengthen control over energy sector arrears. Overall, the authorities’ reform programme has significantly reduced near-term risks with substantial narrowing of the budget deficit and rebuilding of the foreign exchange buffers. Alongside, increasing social spending under BISP is helping the most vulnerable.
In the period ahead, consolidating these gains and focusing the reform efforts on overcoming structural challenges still facing Pakistan will be important to achieve higher exports, investment, jobs, and growth. In this context, we welcome the authorities’ plans to continue strengthening public finances and external reserve buffers, and to accelerate efforts to widen the tax net to create space for infrastructure investment and social assistance.
In addition, efforts continue to restructure loss-making public enterprises, including through strategic partnerships with the private sector, advance the energy sector reform, improve the business climate, and further expand coverage under BISP to protect the most vulnerable. Decisive progress in these areas will help strengthen competitiveness and resilience of the economy and transform Pakistan into a dynamic emerging market economy.