Pakistan and the International Monetary Fund (IMF) have successfully completed negotiations on the 12th and final review under the three-year Extended Fund Facility (EFF) programme for an amount of $6.4 billion.
Successful completion of the last review is indicative of the government’s strong commitment in implementing difficult structural reforms in areas of taxation, energy, monetary and financial sectors and public sector enterprises, official quarters said.
Finance Minister Ishaq Dar said in a press conference on Thursday that their performance throughout the programme culminating in the 12th review has been highly satisfactory.
“We met the end-June 2016 Quantitative Performance Criteria on net international reserves, foreign currency swap/forward position and government borrowing from SBP by significant margins. The targets on net domestic assets and budget deficit were missed narrowly,” Dar said, and added, “The indicative target for end-June, 2016 on targeted cash transfers through BISP and on power sector arrears were met.”
He said the Federal Board of Revenue (FBR) not only achieved its annual target of Rs 3.104 trillion but exceeded it. This indeed is a remarkable achievement as no downward revision was made in FBR’s revenue target and the originally fixed target was achieved and exceeded which is an unprecedented accomplishment and shows the success of the economic policies being followed by the present government. The performance of the FBR becomes even more creditable when viewed in context of the Rs 40 billion shortfall recorded in the first quarter. In subsequent quarters, the indicative targets were met wiping out the deficit of the first quarter. Against an end-year target of Rs 3.104 trillion, FBR collected Rs.3.115 trillion, according to provisional figures, which shows a growth in excess of 20 per cent, over Rs 2.589 trillion collected in FY2015. In the process, the figure of FBR’s tax-to-GDP ratio registered a substantial increase of one per cent.
The finance minister said Pakistan achieved real GDP growth rate of 4.71 per cent in FY 2016, which is the highest in the last eight years. Since FY 2014, the country has maintained GDP growth rate of above 4 per cent. For the next fiscal year, GDP growth is targeted at 5.7 per cent which will gradually steer to 7 per cent in FY 2017.
The industrial sector recorded a growth of 6.8 per cent during FY 2016 which is the highest in the last eight years. LSM growth remained robust at 4.61 per cent during FY 2016 compared to 3.29 per cent last fiscal year. Automobiles registered growth at 23.4 per cent followed by fertilizers 16 per cent, rubber products 11.6 per cent, leather products 12.2 per cent, and chemicals 10 per cent, cement 10.4 per cent while its dispatches witnessed uptick of over 17 per cent; and there has been a continued credit expansion. A welcome development is the increase in fixed investment. Electricity and gas supplies have continued to improve since the start of the current fiscal year.
The Pakistan Stock Exchange (PSX) scaled new height of 39,800 points on KSE 100-index on August 1, crossing the highest index achieved previously in August 2015 indicating robust economic activity and reflecting investor confidence.
Inflation remained contained to less than 3 per cent at 2.89 per cent during FY 2016 as compared to 8.62 per cent in FY 2014 and 4.53 per cent in FY 2015.
Regarding balance of payments, the finance minister said the external sector is stable on the back of continued flows from international financial institutions, low oil prices, rising remittances albeit at a slower pace, which helped narrow down the current account deficit and maintained stability in the foreign exchange market. The foreign exchange reserves increased to $23 billion as of July 22, of which SBP reserves stood at $18.037 billion and that of scheduled banks at $4.960 billion. The net International reserves of the SBP have increased from a low of negative $2.5 billion at the start of the programme to positive $7.5 billion by end-June 2016.
He said the performance of the banking sector remained steady with higher earnings and robust solvency. The sector has high Return on Assets (RoA) of 2.2 per cent and strong Capital Adequacy Ratio (CAR) of 16.1 per cent, well above the 10.25 per cent minimum regulatory requirement.
“We are continuing with the financial sector reforms agenda for strengthening the legal, regulatory and supervisory framework aimed at safeguarding stability of the financial sector,” the finance minister said.
He said the budget deficit which stood at over 8 per cent of GDP in FY 2013 was brought down to 5.3 per cent in FY 2015 and to 4.6 per cent in FY 2016.
“We are also committed to reducing public debt, and laying the foundation for a more sustained growth,” Dar said and added that despite the fact that the government is reducing its fiscal deficit, allocation for Public Sector Development Programme (PSDP) has more than doubled and social safety net expenditures have increased by over 300 per cent after four budgets of the current government.
The ratio of FBR’s tax to GDP has improved significantly over the last three years, from 8.45 per cent in FY 2013 to 10.5 per cent in FY 2016, which is beyond the projected increase of 10.2 per cent for the period.
Regarding social protection, he said the government is committed to supporting the poor and the most vulnerable segments of the population through the Benazir Income Support Programme (BISP). With significant expansion in allocation of BISP cash transfers, which have been enhanced from Rs 40 billion in FY 2013 to Rs 115 billion in FY 2017 increasing the coverage from 3.7 million to 5.46 million families and income support annual stipend from Rs 12,000 to Rs 18,800 during this period. The government has disbursed more than Rs 250 billion to these poor families during the same period.
In partnership with provincial governments, significant progress has been made in the rollout of the education-Conditional Cash Transfers (CCTs) to the targeted needy students. In comparison to 56,000 students in 2013, currently, more than 1.3 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 1.6 million by June, 2017. Besides improving the payment mechanisms by introducing the bio-metric based payments, the government has also initiated the National Socio Economic Registry (NSER) update for a more objective and scientific targeting of deserving families,” Dar said during the press conference.
Referring to debt management, the finance minister said the government is continuing 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 further 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 synchronized,” he said.
On energy, he said the energy sector reforms are on priority agenda of the government and are regularly monitored by the prime minister through the Cabinet Committee on Energy.
“We are 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 along with measures to make the sector self-sustainable in line with the demands of a modern power sector,” Dar said, and added, “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.”
For improving the business climate, we have finalised and put into implementation a new countrywide ease of doing business reform strategy with time bound measures to strengthen the business climate and foster private investments.
The government has 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 the financial sector. Under the SBP guidelines for opening ‘Asaan’ Simple and Small Accounts, banks and microfinance banks have opened more than one million accounts. In addition, over 15 million m-wallets (digital accounts) have been opened in the country.
He said the government is continuously working to reform the PSEs focusing on improving performance, reducing losses and improving service delivery.
The finance minister reiterated that Pakistan is committed to successfully implementing the macroeconomic stability programme announced by the government in June 2013; and the achievement of meeting the performance criteria under the programme reflected the seriousness with which it is 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 said.
The minister said that as we move forward, our effort will be to consolidate the economic gains achieved so far for macroeconomic stability besides working towards higher growth and job creation.
He complimented Harald Finger, the IMF Mission Chief, and his team for an outstanding job they have done in conducting the last quarterly review.