The political situation in Pakistan has improved, but the perception of fragile security conditions continues to affect investment, International Monetary Fund (IMF) said on Thursday.
The IMF released Pakistan's Staff Report after completion of eighth review of the three-year Poverty Reduction and Growth Facility (PRGF) programme.
The constitutional dispute has been resolved, based on parliamentary approval of the Legal Framework Order (LFO) that defines the role of the president in the political system. Recent improvements in relations with India and the implementation of the South Asian Free Trade Agreement (Safta) should bolster regional stability and trade.
On the other hand, tensions remain high in a few areas along the Afghan border and terrorist acts occur occasionally.
Structural measures in the period ahead focus on further strengthening of tax administration and the forceful implementation of energy sector reforms.
The government is working with the World Bank on a medium-term adjustment programme to reduce fiscal burden imposed by the power sector and to achieve expanded access, increased reliability, and lower costs.
Urgent short-term actions include completion of a transparent tariff setting mechanism and subsidy policy, and the development of structural recovery plans for the individual enterprises.
The authorities aim to balance the need for increased social and development spending and further debt reduction. The overall fiscal deficit (excluding grants) will be contained to 4 percent of the GDP, helping in reducing the public debt ratio to below 80 percent of the GDP.
The revenue of CBR is projected to increase by 0.2 percent of the GDP in 2004-05, reflecting further improvements in administrative efficiency and broadening of the tax base.
Together with renewed efforts to reduce subsidies to loss-making public enterprises and a further decline in interest spending, this will create room to increase social and poverty-related spending.
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