The International Monetary Fund (IMF) said on Thursday it had reviewed Pakistan’s economic performance and would make available a further $510 million to the country as part of a three-year $6.7 billion financial assistance programme.
The money would be provided when the review was approved by the IMF’s management and executive board, the Fund said in a statement, saying its discussions with Pakistan was “productive” and that performance criteria in the programme had been met.
This announcement came at a joint press conference of Finance Minister Muhammad Ishaq Dar, and IMF Mission Chief Harald Finger on successful completion of the Eleventh Review under IMF’s Extended Fund Facility Programme.
“After productive discussions, the mission and the Pakistani authorities have reached staff-level agreement on the completion of the Eleventh Review under the EFF arrangement,” said Finger.
The statement added that growth had remained robust despite a weak cotton harvest and declining exports amid a more challenging global environment.
“Real GDP growth is expected to reach 4.5 per cent in the fiscal year 2015-16 and 4.7 per cent in the financial year 2016-17, helped by favourable oil prices, rising investment, including those related to the China-Pakistan Economic Corridor (CPEC), improvements in energy supply, buoyant construction activity and acceleration of credit growth.”
The IMF stated that all end-March 2016 quantitative performance criteria, including the budget deficit target and the floor on the State Bank of Pakistan’s (SBP) net international reserves, had been met.
The agreement was reached after the IMF mission held discussions with Finance Minister Ishaq Dar, SBP Governor Ashraf Wathra and other senior officials in Dubai between May 2 and May 11.
Finance Minister Dar said that “our performance on the Eleventh Review has been highly satisfactory. We met all of the end-March 2016 quantitative performance criteria – SBP’s net domestic assets, net international reserves, foreign currency swap/forward position by significant margins”.
Similarly, he said, the quantitative performance criteria on government borrowing from the SBP and budget deficit for end-March, 2016 had been over performed underlining government’s commitment to sustained fiscal consolidation.
Dar said the indicative target for end-March, 2016 on targeted cash transfers through the Benazir Income Support Programme (BISP) and on power sector arrears were also met.
“The Federal Board of Revenue (FBR) not only achieved its third quarter target of Rs 715 billion, but exceeded it, thus wiping out almost the entire shortfall recorded in the FBR collection for the first quarter,” he said, adding that “this indeed is a remarkable achievement as for the first time after several years, no downward revision has been made in FBR targets and we are on course to achieving the originally fixed targets. Against the indicative target of Rs 2,105 billion for the first nine months of the year, FBR has collected Rs 2,103 billion. The collections improved by around 19 per cent as compared to the last fiscal year”.
Dar said, “We achieved real GDP growth rate of 4.24 per cent in the FY 2015, which is the highest in the last seven years. In view of the damage to the cotton crop, the growth rate for the current year is expected to be around 5 per cent which will be an eight year-high. For the next fiscal year, growth is projected at over six per cent in our macroeconomic framework.”
The minister said the Large Scale Manufacturing (LSM) growth remained robust at 4.4 per cent during Jul-Feb 2016 compared to 2.4 per cent last fiscal year. “The LSM growth is the highest in the last eight years. Major sectors like automobiles registered growth at 28 per cent followed by fertilizers 16 per cent, rubber products 11.6 per cent, leather products 11.5 per cent, and chemicals 11.2 percent,” said Dar, adding that “cement dispatches witnessed uptick by over 19 per cent and there has been a continued credit expansion. A welcome development is the increase in fixed investment. Electricity and gas supplies continued to improve since the start of the current fiscal year. The CPEC will also play a significant role in further boosting economic activities”.
The finance minister said the Pakistan Stock Exchange (PSX) had scaled new height of 36,265 index on May 10, 2016 crossing the highest index achieved previously in August, 2015 indicating robust economic activity and reflecting investor confidence.
He further said that inflation remained contained to less than three per cent during the period Jul-Apr FY 2016 as compared to 8.62 per cent in FY 2014 and 4.53 per cent in FY 2015.
About balance of payment, the minister said the external sector was stable on the back of continued growth in remittances despite high base, continued flows from IFIs, stable exchange rate, and low oil prices, which helped contain the current account deficit. Also, he added, the foreign exchange reserves were close to $21 billion as of May 9, 2016 of which SBP reserves stood at $16.125 billion and that of scheduled banks at $4.802 billion.
Regarding the financial sector, Dar said that performance of the banking sector remained steady with improved earnings and robust solvency. “The sector has high Return on Assets (RoA) of 2.3 per cent and strong Capital Adequacy Ratio (CAR) of 16.3 per cent, well above the 10.25 per cent minimum regulatory requirement.”
He said Pakistan was continuing with the financial sector reforms agenda for strengthening the legal, regulatory and supervisory framework aimed at safeguarding stability of the financial sector.
“The budget deficit which stood at over eight per cent of GDP in FY 2013 was brought down to 5.3 per cent in FY 2015 and is targeted for 4.3 per cent in current FY 2016. We are also committed to reduce public debt, and lay the foundations for a more sustained growth,” added Dar.
The minister said that despite the fact that the government was reducing its fiscal deficit, allocation for the Public Sector Development Programme (PSDP) had doubled and social safety net expenditures had increased by 267 per cent through three budgets of the current government.
“The ratio of FBR taxes to GDP has improved significantly over the past two years, from 8.45 per cent in FY 2013 to 9.5 per cent in FY 2015, and is projected to increase to 10.2 per cent in the current fiscal year. Moreover, in the same period the total tax revenue has increased from 10 per cent of the GDP to 12.2 per cent,” he said.
About social projection, Dar said the government was committed to supporting the poor and most vulnerable segments of population through BISP with a significant expansion in allocation of BISP cash transfers, which had been enhanced from Rs 40 billion in FY 2013 to Rs 107 billion in FY 2016; increasing the coverage from 3.7 million to 5.3 million families; and extensively enhanced income support annual stipend from Rs 12,000 to Rs 18,800 during this period.
Dar said that in partnership with the provincial governments, significant progress had been made in the roll-out of the education sector-Conditional Cash Transfers (CCT) to the targeted needy students. “Currently, more than one million children are beneficiaries of the CCT in 32 districts across the country. We will further expand the total number of children benefitting from the programme to 1.3 million by end-June 2016,” he added.
Regarding debt management, the minister said the government continued to diversify financing from both domestic and external sources, lengthen the maturity profile of domestic debt and improve the balance between domestic and external debt. “To achieve these objectives, we are working to strengthen the Debt Policy Coordination Office (DPCO). We have appointed the risk management staff and the Medium Term Debt Management Strategy (MTDS) has already been published. Rate setting between retail and wholesale markets have also been synchronised,” he added.
The minister said the energy sector reforms was on priority agenda of the government and was regularly monitored by the prime minister through the Cabinet’s Committee on Energy. To implement the reforms, he said, the government was working to reduce energy shortages with special emphasis to ensure sustained supply to industry with the goal of adding over 10,000 MW of electricity to the system by March 2018.
“We have added imported liquefied natural gas (LNG) to the system, which has improved energy supply in the country, especially to the industrial sector, as the import of LNG has doubled to 400 mmcfd,” he added.
For improving business climate, Dar said the government had finalised and put into implementation a new countrywide ease of doing business reform strategy with time-bound measures to strengthen business climate and foster private investments. “We have developed a comprehensive National Financial Inclusion Strategy (NFIS) to implement financial reforms to meet financing needs of the marginalised and unbanked segments of society. The strategy lays particular emphasis on including the female gender into financial inclusion. Under SBP guidelines for opening ‘Asaan’ Simple and Small Accounts, banks and Microfinance banks have opened about 750,000 accounts,” he added.
The finance minister reiterated that Pakistan was committed to successfully implement the macroeconomic stability programme announced by the government in June 2013; and positive achievement in meeting the performance criteria under the programme reflected the seriousness with which the programme was being concluded.
“It is not only the quantitative targets but also the rich agenda of structural reforms being undertaken with the aim of stabilisation of economy and creation of room for faster and inclusive growth, and poverty reduction,” he added.
Dar complimented IMF Mission Chief Harald Finger and his team for doing an outstanding job in conducting the Eleventh Quarterly Review.
