issued the following statement:
“Pakistan is facing serious economic challenges. Overall vulnerabilities and crisis risks are high, with subpar growth and unsustainable fiscal and balance of payments positions. In this context, the authorities’ comprehensive economic program is timely and welcome.
“The authorities’ 2013/14 federal budget represents an important initial step towards the needed fiscal consolidation.
However, to ensure medium-term fiscal sustainability and create fiscal space for social and investment spending, it is important to raise the tax-toGDP ratio, including by broadening the tax base through a reduction in exemptions and concessions and extending taxation to areas currently not fully covered by the tax net. An overhaul of tax administration is also required, and provinces should contribute fully to the adjustment effort.
“Monetary and exchange rate policies should be geared to rebuilding external buffers, direct lending to the government should cease and efforts to improve independence of monetary policy need to be stepped up to pave the way for improved price stability.
Risks to the banking sector are manageable, although the undercapitalization of vulnerable banks needs to be addressed. “To achieve sustained and inclusive growth, shortterm macroeconomic measures must be complemented by significant structural and governance reforms.
The recently announced energy policy will address the long-standing problems in the sector, which constitute the most crucial constraint on growth and have generated large fiscal costs. In addition, the trade regime needs to be liberalized, public sector enterprises need to be restructured or privatized, and the business climate needs to be improved.
“Protecting the most vulnerable from the direct and indirect impacts of fiscal consolidation and price adjustments is a priority. Coverage and benefits of these programs should be expanded as savings from tariff adjustments and fiscal space are realized.”