IMF says energy sector reforms cut subsidies, outages in Pakistan

ISLAMABAD: The International Monetary Fund- (IMF) supported energy sector reforms helped Pakistan in reducing power outages and energy subsidies during the last three years, it said.

“Completing the power sector reform will be important to strengthen the soundness of the sector and support growth,” the Fund said in a statement issued after its executive board completed the 12th and final review under the extended fund facility for Pakistan on Wednesday.

The IMF said it supported Pakistan to restore macroeconomic stability, reduce vulnerabilities and make progress in tackling key structural challenges. The country’s economic growth has gradually increased and inflation declined, the Fund added.

“The external buffers have been bolstered, financial sector resilience has been reinforced and the fiscal deficit has been reduced while social safety nets have been strengthened,” it said. It added that the tax policy and administration reforms allowed for further revenue mobilisation.

The IMF further said steps have been taken to strengthen the State Bank of Pakistan’s autonomy.  A country-wide strategy to improve the business climate was adopted, it added.

The Fund said significant challenges, however, remain for Pakistan in the post programme period and, “the authorities’ commitment to continue implementing strong policies to reinforce macroeconomic stability gains and advance growth supporting reforms is to be commended.”

“In light of the significant public debt burden, the authorities plan to further reduce the fiscal deficit is welcome,” it said. The IMF said the budget for the current fiscal year of 2016/17 and the revised fiscal responsibility framework could anchor fiscal policy in support of a further gradual fiscal consolidation.

It said an accumulation of international reserves in a context of sufficient exchange rate flexibility will help strengthen confidence and competitiveness, while maintaining a prudent monetary policy stance will be key to supporting low inflation and macroeconomic stability.

Swiftly addressing the remaining recommendations of the 2013’s safeguards assessment is needed to further strengthen the central bank’s autonomy.  “Further progress in advancing financial sector reforms will be important,” the IMF said. “Moving forward with key structural reforms is pivotal to foster higher and more inclusive growth.”

Restructuring and attracting private sector’s participation in public enterprises is needed to ensure their financial viability and reduce fiscal costs. Continuing to move forward with the implementation of the new business climate reform strategy will help increase competitiveness, foster investment and support private sector-led growth and job creation.

The IMF said the engagement with Pakistan will continue through policy dialogue in the context of regular consultations and post program monitoring along with ongoing technical assistance.  

After the review completion, the IMF released the final tranche of SDR73 million (about $102.1 million) to Pakistan under its 36-month extended fund facility of $6.15 billion or 216 percent of the country’s current quota at the IMF. The agreement was signed in 2013.