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

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.