11th IMF review successfully completed

WEB DESK: Pakistan and the International Monetary Fund (IMF) mission led by Harald Finger successfully completed the eleventh review in Dubai under the $6.64 billion Extended Fund Facility which would lead to the release of the second last tranche of $510 million.

All end-March quantitative performance criteria, including the budget deficit target (4.3 percent in 2016) and the floor on State Bank of Pakistan’s (SBP) net international reserves were met as was the indicative target on social spending for the Benazir Income Support Programme and the target for power sector arrears, according to the IMF press release.

The government release states that the external sector is stable on the back of continued growth in remittances despite high base, continued flows from IFIs, stable exchange rate, and low oil prices, which helped contain the current account deficit.

The foreign exchange reserves are close to $21 billion as of May 9th, 2016 of which SBP reserves stood at $16.125 billion and that of scheduled banks at $4.802 billion.

The performance criteria and indicative targets as agreed in the tenth review for end-March were as follows: (i) floor on net international reserves of SBP at $9.3 billion, (ii) ceiling on domestic assets of SBP Rs 2.6 trillion, (iii) ceiling on overall budget deficit (cumulative excluding grants of billions of Pak rupees) at Rs 1 trillion, (iv) ceiling on net government budgetary borrowing from SBP at Rs 1.8 trillion and (v) power sector arrears (flow) of Rs 17 billion while power sector stock was targeted to increase to Rs 341 billion in the third quarter of the current year against Rs 287 billion target for the second quarter with actual amount at Rs 326 billion.

The government statement says, “the energy sector reform is on priority agenda of the government and is regularly monitored by the Prime Minister through the Cabinet Committee on Energy. To implement the reforms: (i) we are working to reduce energy shortages with special emphasis to ensure sustained supply to industry with the goal of adding over 10,000 MW of electricity to the system by March 2018, (ii) we have added imported Liquefied Natural Gas (LNG) to the system, which has improved energy supply in the country, especially to the industrial sector, as the import of LNG has doubled to 400 mmcfd.

The indicative tax revenue collection target of Rs 2105 billion was missed by only Rs 3 billion while the Fund’s press release notes that “tax revenue collection continued to grow at a healthy pace in the third quarter of fiscal year 2015/16.”

The Finance Ministry’s press release notes that the ratio of FBR taxes to GDP improved significantly over the last two years – from 8.45 percent in 2013 to 9.5 in 2015 and projected to increase to 10.2 percent in the current fiscal year and in the same period the total tax revenue increased from 10 percent of GDP to 12.2 percent.

“Growth remains robust despite a weak cotton harvest and declining exports amid a more challenging global environment. Real GDP growth is expected to reach 4.5 percent in fiscal year 2015-16 and 4.7 percent in fiscal year 2016-17, helped by favourable oil prices, rising investment, including related to the China Pakistan Economic Corridor (CPEC), improvements in energy supply, buoyant construction activity, and acceleration of credit growth.

Headline consumer price inflation has continued to rise, owing to diminishing effects of past declines in commodity prices. Average inflation is expected at around 3 percent in fiscal year 2015-16, remaining well-anchored by continued prudent monetary policy. Gross international reserves reached US $16.1 billion in March 2016, covering close to four months of prospective imports.

The IMF release notes that discussion on the final review would begin in August with the final tranche release in September after which the Fund’s leverage on the government’s economic agenda would end.

This promoted the IMF press release to state that “we welcome the authorities’ plans to continue with fiscal consolidation in the coming fiscal year, further expand the tax net, strengthen the fiscal responsibility framework, address financial losses in the public enterprises, continue to pursue energy sector reforms, and accelerate competitiveness-enhancing improvements in the business climate. Completing these reforms will help consolidate macroeconomic stability and create conditions for higher growth and job creation”.

The Finance ministry release states that despite the fact that the government is reducing its fiscal deficit, allocation for Public Sector Development Program (PSDP) has doubled and social safety net expenditures have increased by 267 percent through three budgets of the current government.

It further states that for improving business climate, government has finalised and put into implementation a new countrywide ease of doing business reform strategy with time-bound measures to strengthen business climate and foster private investments.

Further, it has developed a comprehensive National Financial Inclusion Strategy (NFIS) to implement financial reforms to meet financing needs of the marginalized and un-banked segments of society. The strategy lays a particular emphasis on including the female gender into financial inclusion. Under SBP guidelines for opening “Asaan” Simple and Small Accounts, banks and Microfinance banks have opened about 750,000 accounts. – Business Recorder