The International Monetary Fund (IMF) on completion of mandatory first review of $6 billion Extended Fund Facility (EFF) reached agreement with Pakistani authorities and emphasized that Pakistan needs to maintain fiscal prudence to reduce fiscal vulnerabilities and proceed with the strategy on energy reforms agreed with the international partners.
A statement issued after the completion of the first review stated that IMF reaches Staff-Level Agreement with Pakistan as all performance criteria for end-September were met with comfortable margins and progress continues towards meeting all structural benchmarks and government's policies have started to bear fruit, helping reverse the buildup of vulnerabilities and restore economic stability. The external and fiscal deficits are narrowing, inflation is expected to decline, and growth, although slow, remains positive.
However, sustaining sound policies and advancing structural reforms remain key priorities to enhance resilience and pave the way for stronger and sustainable growth, noted the IMF.
An International Monetary Fund (IMF) mission led by Ernesto Ramirez Rigo visited Islamabad from October 28 to November 8, 2019 to conduct discussions on the first review and agreement reached with Pakistan is subject to approval by IMF management and the Executive Board of Directors. Completion of the review will enable disbursement of SDR 328 million (or around US$ 450 million) and will help unlock significant funding from bilateral and multilateral partners.
The IMF acknowledged that despite a difficult environment, program implementation has been good, and all performance criteria for end-September were met with comfortable margins. "Work continues towards completing the remaining structural benchmarks for end-September," according to IMF.
The Fund said that significant progress has been made in improving the AML/CFT framework but additional work is needed before March 2020. International partners remain committed to supporting the authorities' reform efforts, providing the necessary financing assurances.
On the macroeconomic front, signs that economic stability is gradually taking hold are steadily emerging and external position is strengthening, underpinned by an orderly transition to a flexible, market-determined exchange rate by the State Bank of Pakistan (SBP) and a higher-than-expected increase in SBP's net international reserves.
Budgetary revenue collections are growing on the back of efforts on tax administration and policy changes, despite the ongoing compression in import-related taxes. Inflation pressures are expected to recede soon, reflecting an appropriate monetary stance. Importantly, measures to strengthen the social safety net are being implemented, and development spending is being prioritized.
The IMF has not changed its near-term macroeconomic outlook for Pakistan and stated that it is broadly unchanged from the time of the program approval, with gradually strengthening activity and average inflation expected to decelerate to 11.8 percent in fiscal year 2020. However, domestic and international risks remain, and structural economic challenges persist.
The review mission's discussions focused on policies to support Pakistan achieve a strong and balanced growth. Fiscal prudence needs to be maintained to reduce fiscal vulnerabilities, including by carefully executing the fiscal year 2020 budget, implementing the new public finance management legislation, and continuing to broaden the tax base by removing preferential tax treatments and exemptions, while protecting critical social and development spending.
Advancing the strategy for electricity sector reforms, agreed with international partners, is important to put the sector on a sound footing, and remove recurrent arrears and accumulation of debt.
Further efforts to strengthen SOE governance and operations, advance anti-corruption reform, and improve the business environment are keys to mobilizing investment and support growth and job creation. The authorities recognize that decisive implementation of these policies is indispensable for entrenching macroeconomic stability and restoring a robust and balanced growth.
The IMF review mission led by Mission Chief Ernesto Ramirez Rigo Friday met with the government economic team led by Adviser to the PM on Finance Dr Abdul Hafeez Shaikh on conclusion of their review.
Dr Hafeez Shaikh appreciated IMF's financial, technical and advisory support to Pakistan.
The Mission remained in Pakistan from 28th October to 8th November and held meetings with the PM and the government economic team, provincial governments and other stakeholders.
The IMF Mission Chief acknowledges the government's efforts in meeting targets and praised the government for introducing far-reaching economic reforms in a challenging environment. Next review will take place early next year, the statement concluded.
Copyright Business Recorder, 2019
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