Pakistan has committed to imposing a regulatory duty (RD) on non-essentials commodities and luxurious items to mobilise Rs 15 to Rs 20 billion to minimise the agreed shortfall in revenue of Rs 119 billion, it was learnt. The government and the International Monetary Fund (IMF) have agreed to an upward revision in the fiscal deficit target to 5.4 percent from the budgeted 4.9 percent for the current fiscal year.
-- Country to get $518m IMF tranche
-- Agreement reached over upward revision of fiscal deficit target
The Pakistan team led by Finance Minister Ishaq Dar made the commitment with a Staff-level mission led by Jeffery Franks in Dubai during the sixth review under the $6.64 billion Extended Fund Facility (EFF), which concluded on Thursday. Sources revealed to Business Recorder that Pakistan committed to a capital market transaction of 43 per cent government held shares in Habib Bank Limited (HBL) in two transactions; and privatisation of three electricity distribution companies (DISCOs) in the current calendar, as opposed to fiscal year.
Pakistani authorities have committed to the IMF that a legislation on the State Bank of Pakistan (SBP) Act would be enacted by end June 2015. A statement issued by Finance Ministry noted that Finance Minister Ishaq Dar addressed a press conference along with IMF Mission Chief Jeffrey Franks in Dubai on Thursday. The review was successfully completed, the statement noted, which would enable the IMF to go to its board for the release of seventh tranche of about $518 million. The Minister said that completion of the sixth review was indicative of the government's commitment in implementing structural reforms in the areas of taxation, energy, monetary and financial sectors and public sector enterprises. "Economic activities continue to improve. We are expecting better growth from agriculture sector, particularly from wheat and cotton crops despite the floods this year," the Minister added.
The Minister highlighted areas on which the IMF mission was briefed during the course of almost 7 days of talks. He said stable growth in workers' remittances and low oil prices helped to contain the current account deficit in the balance of payments. Successful issuance of international Sukuk and multilateral inflows enabled the foreign exchange reserves of SBP and scheduled banks crossing the US $15 billion mark on 31st December 2014 which implies that the country has re-qualified for facilities offered under the IBRD. CPI inflation continued its declining trend and was clocked in at 3.9 percent year on year in January 2015. The average CPI for July-January stood at 5.77% compared to 8.8% for the same period last year.
The press statement added that the performance of the banking sector remained robust as earnings surged, asset quality improved and solvency strengthened. The Minister affirmed that the budget for fiscal year 2014-15, consistent with the program objective was approved. "We are well underway to achieve the fiscal deficit target. In the first half of fiscal year 2014-15, we over-performed on the fiscal targets agreed with the IMF," he remarked.
The Minister in his concluding remarks said" "we have successfully completed the negotiations of the sixth review. This has been a team effort. Our challenges remain numerous but we are determined that we will remain on track in achieving the objectives of the program in line with PML (N)'s 2013 election manifesto." The Minister complemented Jeffrey Franks, the Mission Chief of the IMF, and his team for an outstanding job in conducting the sixth quarterly review.
Jeffrey Franks lauded performance of the Government in achieving various benchmarks and economic targets. He said there was overall improvement in Pakistan's economy but emphasised that efforts should be made towards building up forex reserves. He also called for more efforts aimed at autonomy of the State Bank, the statement noted.
A statement issued by the IMF stated that "the mission and the Pakistani authorities have reached staff-level understandings on a Memorandum of Economic and Financial Policies on the sixth review of the program, which, upon approval by the IMF's Management, will be discussed by the IMF Executive Board. Upon completion of the review, SDR 360 million (about US $518 million) would be made available to Pakistan.
"Economic activity and the external position continue to improve, driven by prudent monetary and fiscal policies and helped by lower oil prices and robust remittances. Financial sector indicators remain sound. In fiscal year (FY) 2014/15, real GDP growth is expected to reach 4.3 percent with headline inflation remaining low. The external current account deficit will narrow to around 1.2 percent of GDP despite a decline in exports driven by lower cotton prices and real exchange rate appreciation. These developments, along with strong capital inflows and the recent Sukuk placement, have allowed further strengthening of the foreign exchange reserve buffers, which reached US $10.5 billion at end-December 2014.
"The authorities' reform program remains on track. All end-December 2014 quantitative performance criteria were met, as well as the indicative target on transfers under the Benazir Income Support Program (BISP). The end-December structural benchmark for this review on submission of Anti-Money Laundering (AML) legislative amendments was also met.
"Fiscal performance has been generally good. The budget deficit for end-December was significantly below the program target. However, tax revenues were below the second-quarter indicative target by about 0.1 percent of GDP due in part to legal challenges to some revenue measures and to the fiscal effects of the plunge in international oil prices. Fund staff support the authorities' efforts to address this shortfall with new revenue measures.
"The sharp drop in oil prices represents an historic opportunity to reduce the vulnerability of the economy by building stronger fiscal and external buffers, and to address some of the long-standing imbalances in the energy sector while still reducing consumer costs. We strongly support the authorities' efforts in this regard. While progress has been made in addressing the structural impediments to higher and more inclusive growth, important challenges remain, such as steps to enhance the independence of the SBP, permanently resolve energy sector deficiencies, complete the legal framework for deposit insurance, and privatise or restructure public enterprises. "The mission thanks the authorities and technical staff for their co-operation and reaffirms the IMF's support to the government's efforts to implement their economic reform program."