Reforms reduce risks to Pak economy: IMF

WASHINGTON: The International Monetary Fund (IMF) on Thursday welcomed the commitment of the Pakistan government to economic reforms which has significantly reduced the short term risks to the economy.
“The authorities are making progress with consolidating macroeconomic stability and tackling structural obstacles to growth with several important structural reforms in various stages of preparation or implementation,” said Harald Finger who headed the IMF team to discuss the ninth review of economic performance under the IMF programme.
Announcing a staff level agreement with Pakistan after the conclusion of talks in Dubai, Harald Finger described the discussion as productive.
The IMF team met with the Pakistani team headed by Finance Minister Ishaq Dar and including State Bank Governor Ashraf Wathra and other senior officials. The meetings were held both in Islamabad and Dubai from October 26 to November 5.
After productive discussions, the mission and the Pakistani authorities have reached staff level agreement on the completion of the ninth review under the EFF arrangement, he added.
The agreement is subject to approval by the IMF management and the Executive Board. Upon completion of this review about $502 million will be made available to Pakistan he added.
“Economic activity continues to improve while challenges remain. Real GDP is expected to grow by about 4.5 percent in FY 2015-16 helped by lower oil prices, planned improvements in the supply of energy and investment related to the China Pakistan Economic Corridor (CPEC),” Finger said.
At the same time, he added, the slowdown in private credit growth and weakness in exports and imports are weighing on growth prospects.
Headline consumer price inflation is expected to increase to around 4.5 percent by end of the fiscal year due to a likely bottoming out of the effects of low commodity prices but to remain well anchored by continued prudent monetary policy.
Gross international reserves reached $15.2 billion by the end of September 2015 up from $13.5 billion at end of June 2015 and covering close to four months of prospective imports.
End September 2015 quantitative performance criteria on the SBP’s net international reserves, government borrowing from the SBP and foreign currency swap forward position were met and so were the indicative ceiling on accumulation of power sector arrears and the indicative floor on social spending under the Benazir Income Support Programme (BISP).
However, the performance criteria on net domestic assets (NDA) and the fiscal deficit were missed as was the indicative target on tax revenue.
The mission welcomed the authorities’ plans to take action to attain the budget deficit and tax revenue targets for FY 2015-16 and to bring NDA in line with programme targets.
Article IV discussions focused on the reform agenda to increase the structural resilience and competitiveness of the economy and generate a stronger and sustainable growth momentum which remains an important medium term challenge, the official said.
He said the government is making progress with consolidating macroeconomic stability and tackling structural obstacles to growth.
Completing this agenda is critical for Pakistan to achieve its broader economic objectives and continued effort will be important in the period ahead.
In this context reform efforts should continue to focus on strengthening public finances and external reserve buffers and on accelerating steps to widen the tax net to create space for more infrastructure investment and social assistance.
In addition, key priorities for growth include restructuring or privatising loss making public enterprises, advancing energy sector reform, improving the business climate, promoting gender equality and further expanding coverage under the BISP to protect the most vulnerable.