The authorities and the IMF have reached an agreement on the completion of the mandatory first review of the $6 billion Extended Arrangement (EFF).
According to a press release issued by the IMF, the two sides reached the agreement during a visit by an IMF mission, led by Ernesto Ramirez Rigo, from October 28 to November 8. During this time, meetings were held with the PM and the government’s economic team, provincial governments, and other stakeholders.
The 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, notes the IMF.
The agreement is subject to approval by IMF management and the Executive Board of Directors. Completion of the review will enable disbursement of $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 good margins.
”Work continues towards completing the remaining structural benchmarks for end-September,” added IMF.
The fund stated that significant progress has been made in improving the AML/CFT framework, although 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.
IMF noted that 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 the 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 to achieve strong and balanced growth. Fiscal prudence needs to be maintained to reduce fiscal vulnerabilities, 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 is important to put the sector on a sound footing, other than reducing recurrent arrears and the 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 the 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 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.