For getting approval of loan govt implements 10 conditions; Dar says in the letter the govt continues to pursue comprehensive programme of economic, financial sector reforms
ISLAMABAD: Federal Minister for Finance Ishaq Dar has signed and dispatched official letter to World Bank’s President Jim Yong Kim, requesting the WB for granting approval for $300 million programme loan for Pakistan after implementing tough conditions including taking steps related to money laundering and Benami transactions with the approval of the Parliament as well as moving towards establishment of Pakistan Infrastructure Bank (PIB).
For getting approval of $300 million programme loans expected to be considered by the WB’s board mid of next month (March 2017), Pakistan has implemented ten conditions including converting State Life Insurance Company (SLIC) into company as corporatization process is underway to make it National Life Insurance Company (NLIC).
According to official letter sent out to WB’s Headquarters at Washington DC, Pakistan’s Finance Minister Ishaq Dar wrote that the government continues to pursue a comprehensive programme of economic and financial sector reform. These reforms are intended to spur investment, increase financial inclusion and accelerate economic growth that is inclusive, board based and sustainable.
The government is now pursing Pakistan Finance for Growth Development Policy Financing (FGDPF), which is an IDA Development Policy Credit in the amount of $300 million.
The International Development Association (IDA) credit will provide needed external and financial and signal our determination to implement sustainable economic and financial sector reforms. This Letter of Development Policy sets out the government’s key policy action to be supported by this operation.
The signed letter of the Finance Minister states that main objective of the FGDPF is to deepen and sustain the financial sector reforms supported by the previous development policy credit (DPC) series so that greater financial inclusion and transparency is achieved, leading to increase in economic activity and businesses, availability of long term finance for investment, strengthening of confidence in the financial sector and reduced poverty. This builds on continued macroeconomic stability, fiscal discipline and an improving business environment, which will lead to enhanced private sector investment and private sector-led economic growth.
The government, he states, has successfully designed and implemented its economic reform programme. Pakistan’s economy is on the rise in the wake of sustained economic reforms agenda being implement since June 2013. Key elements of the reforms include fiscal consolidation, transparency and improved energy supplies by comprehensive energy sector reforms programme, as well as financial sector reforms. After having achieved macroeconomic stability in first three fiscal years, the government is now focused on attaining higher sustainable and inclusive growth. Growth rate target of 6-7 percent has been set to be achieved by FY 2018/2019.
Fiscal consolidation has been achieved by increasing revenues, reducing tax exemption eliminating wasteful expenditures, rationalizing subsides and improving debt management. Fiscal deficit has been reduced from a high of 8.2 percent of GDP in FY 2013 to 4.6 percent in FY 2016.
The balance of payment position, he stated, has significantly improved with an increase in international reserves resulting from strong remittance, foreign capital and financial inflow and improved current account due to lower global commodity prices including oil. As a result of prudent monetary and fiscal management, the external sector challenges have moderate and the forex market has stabilized. Headline inflation remains low (average inflation during July-January FY 17 stood at 3.85 percent).
In the past decade and a half, growth has been broadly pro-poor in Pakistan. We have also update and revised the poverty line working using a more advanced methodology of Cost of Basic Needs (CBN) instead of the previously used Foods Energy Intake (FEI) method which does not take into account non-food needs of household. Under the old FEI method, the poverty headcount, which was 34.7% in 2001, has come down to less than 10% in 2014. While adopting the new CBN method, the poverty headcount which was 64% in 2001 has now come down to 29.5% in 2014. The government is committed to transpose the update poverty line in its development policy framework.
Doing business reforms in order to enable economic growth and private sector led creation of more jobs. Pakistan is ranked 144 out of 190 economies on the overall ease of doing business ranking in 2017, having improved four points from 148 in 2016. The government prepared and implemented a national Doing Business reforms strategy, which comprehensively covers all 10 indicators. The plan is currently being implemented both at the national and provincial levels. As a result, Pakistan was recognised as one of the top ten reforms in DB 2017.
Strengthening financial intermediation and allowing more dynamic private sector growth the government has revised the legislative framework governing the financial sector. Some of these reforms included the Financial Institutions (Secured Transaction) Act, 2016, The Amendment to the Credit Bureau Act, the Amendment to the Securities and Exchange Commission of Pakistan (SECP) Act and the Financial Institution (Recovery of Finances Amendment) Bill.
Present Operation (FGDPF) to support continuity of reforms:- The government has stepped up reform efforts in the financial sector to increase access to finance and enhance transparency. These reforms will have significant positive impact on poverty reduction, shared prosperity and gender equality. The government has completed following reforms through the current DPC operation:
Improving access to finance and enhancing financial inclusion:-Launching of Digital Transaction (DTA) Scheme and Reforms in Central Directorate of National Savings (CDNS). The National Financial Inclusion Council has approved a Digital Transaction Accounts (DTA) Scheme in January 2017 (prior action) to accelerate growth in convenient and affordable access to financial services by all segments of the population, including women, SMEs and rural segments. The approved DTA scheme will increase the total number of accounts in the country and once implemented, the scheme is expected to contribute to the National Financial Inclusion Strategy 2020 targets.
Infrastructure, private sector investment and engagement is essential:- The SBP has issued prudential regulations for long term finance that are focused on infrastructure project finance. The new infrastructure finance policy and supporting new prudential regulations for long term finance that will create an enabling environment to unlock long term finance to spur growth.
Enhancing transparency of the financial sector:- Completion of National Risk Report (NRA) and Enactment of Benami Transactions (Prohibition) Act 2017, the government continues its efforts for documentation of financial transactions and curtailment of money laundering/financing of terrorism (ML/FT) risks. The NRA has been completed as part of financial sector reforms. Similarly, the practice of Benami transaction which facilitates tax avoidance and money laundering has been curtailed through legislation of Benami Transactions (Prohibitions) Act 2017.
Further Improving the Investment Climate:- Modernizing the legal framework for companies through the new Companies Ordinance 2016 to repeal 32 years old Companies Ordinance 1984, will enhance transparency for the private sector and increase efficiency. The Companies Bill 2016 has been passed by the National Assembly as part of the reform program that this operation supports.
Reform to Continue beyond This Operation:- The government acknowledges that reforms supported by the proposed operation (FGDFP) require ongoing efforts in order to be fully implemented. The government reaffirms its plan to continue with the broader reform in order to promote an inclusive and transparent financial sector, enabling better implementation for long term finance. For all supported actions, implementation efforts are underway.
Pakistan Infrastructure Bank:- The govt is currently facilitating setting up of PIB through International Finance Corporation (IFC) which will have majority of share holding by IFIs and private sector. It will mobilise private sector long term funding for infrastructure projects in Pakistan.
Implementation of Digital Transaction Accounts (DTA) Scheme as supported by National Financial Inclusion (NFI) Council will support the rapid expansion of DTAs and help achieve NFIS target of 50 percent of the population having access to bank accounts.
The government believes that the ambitious reforms programme implemented in last 3 years and outlined above supported by the proposed operation will help develop and deepen Pakistan’s financial sector, the letter of FM concluded.