Govt gets $497m tranche af­ter 10th re­view of econ­omy

The Pak Banker - - FRONT PAGE -

An In­ter­na­tional Mon­e­tary Fund (IMF) staff mis­sion, led by Har­ald Fin­ger, vis­ited Dubai dur­ing Jan­uary 26-Fe­bru­ary 4, 2016 to con­duct dis­cus­sions on the tenth re­view of Pak­istan's eco­nomic pro­gram sup­ported by a three-year IMF Ex­tended Fund Fa­cil­ity (EFF) ar­range­ment. The staff team met with Fi­nance Min­is­ter Ishaq Dar, State Bank of Pak­istan (SBP) Gov­er­nor Ashraf Wathra, and other se­nior of­fi­cials.

At the con­clu­sion of the mis­sion, Fin­ger said af­ter con­struc­tive dis­cus­sions, the mis­sion and the Pak­istani au­thor­i­ties have reached staff-level agree­ment on the com­ple­tion of the tenth 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 $497 mil­lion will be made avail­able to Pak­istan.

Eco­nomic ac­tiv­ity re­mains ro­bust. Al­though a weak cot­ton har­vest, de­clin­ing ex­ports, and a more chal­leng­ing ex­ter­nal en­vi­ron­ment are weigh­ing on growth prospects, real GDP growth is ex­pected to reach 4.5 per­cent in FY 2015/16, helped by lower oil prices, planned im­prove­ments in the en­ergy sup­ply, in­vest­ment re­lated to the China Pak­istan Eco­nomic Cor­ri­dor (CPEC), buoy­ant con­struc­tion ac­tiv­ity, and ac­cel­er­a­tion of credit growth.

Head­line con­sumer price in­fla­tion has be­gun to rise as the ef­fects of past de­clines in com­mod­ity prices fade, and will likely reach around 4.5 per­cent by end of FY 2015/16. Nev­er­the­less, in­fla­tion is ex­pected to re­main well-an­chored by con­tin­ued pru­dent mon­e­tary pol­icy. Gross in­ter­na­tional re­serves reached US$15.9 bil­lion in De­cem­ber 2015, up from US$15.2 bil­lion at end-Septem­ber 2015 and cov­er­ing close to four months of prospec­tive im­ports.

"The mis­sion wel­comed the au­thor­i­ties' strong pro­gram per­for­mance in the se­cond quar­ter of FY2015/16. All end-De­cem­ber 2015 quan­ti­ta­tive per­for­mance cri­te­ria, in­clud­ing the bud­get deficit tar­get and the floor on the SBP's net in­ter­na­tional re­serves, have been met. The in­dica­tive tar­gets on so­cial spend­ing un­der the Be­nazir In­come Sup­port Pro­gram (BISP) and power sec­tor ar­rears have also been met. Strong tax rev­enue col­lec­tion in the se­cond quar­ter of FY2015/16 helped re­coup much of the pre­vi­ous quar­ter's short­fall, with the in­dica­tive tar­get missed only by a nom­i­nal mar­gin. While many struc­tural bench­marks have been met, mea­sures per­tain­ing to the en­ergy sec­tor re­form and re­struc­tur­ing of loss-mak­ing pub­lic en­ter­prises are yet to be im­ple­mented.

"The au­thor­i­ties' pro­gram con­tin­ues to firm up macroe­co­nomic sta­bil­ity with stronger pub­lic fi­nances and for­eign ex­change re­serve buf­fers, and ex­panded pro­tec­tion of the most vul­ner­a­ble un­der the Be­nazir In­come Sup­port Pro­gram (BISP). Fur­ther con­sol­i­da­tion of th­ese gains and strength­en­ing the long-tem re­silience of the econ­omy is the main pri­or­ity in the pe­riod ahead. To this end, ad­vanc­ing the en­ergy sec­tor re­form, set­ting in mo­tion com­pet­i­tive­ness-en­hanc­ing im­prove­ments in the busi­ness cli­mate, con­tin­u­ing to ex­pand the tax net, and end­ing losses in pub­lic en­ter­prises will be crit­i­cal.

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