IMF Sets New Structural Benchmarks Under Its Standby Arrangement For Pakistan

The International Monetary Fund (IMF) has set two new Structural Benchmarks (SBs) for stand-by arrangement (SBA) including (i) notification of the December 2023 semiannual gas tariff adjustment determination and (ii) development of a plan to strengthen internal control systems in the lending operations.

The Fund in its latest country report “first review under the Stand-by Arrangement, requests for waivers of applicability of performance criteria, modification of performance criteria and for rephasing of access”, noted that new structural benchmarks are proposed:

• Notification of the December 2023 semi-annual gas tariff adjustment determination (February 15, 2024); and
• For the SBP to develop a plan to strengthen internal controls systems in lending operations, in line with the recommendations from the 2023 Safeguards Assessment (March 8, 2024).

The SBs on the notification of the fiscal year 2024 annual rebasing and the compilation and dissemination of quarterly national accounts were met.

The continuous SB on the average premium between the interbank and open market exchange rate was missed from mid-August to early September. the country missed the  SB on average premium between the interbank and open market rate that should not be more than 1.25 percent during any consecutive 5 business day period.

The continuous SB on the average premium between the interbank and open market exchange rate was missed from mid-August to early September, due in part to speculative activities and illegal trading. However, subsequent structural reforms in the EC sector should enhance governance and transparency and reduce the risk of future deviations.

The report noted that the SB on to improve state-owned enterprise (SOE) governance by:

• Operationalizing the recently approved SOE law into a policy that clarifies ownership arrangements and the division of roles within the federal government; and
• Amending the Acts of four selected SOEs to make the new SOE law fully applicable to those SOEs by the end of November was also not met.

Strong progress was made at the end-November SB on improving SOE governance, including

• The operationalization of the SOE Act into a policy that clarifies ownership arrangements and roles; and
• Significant progress, via ordinance, on amending the Acts of four selected SOEs to make the new SOE Act fully applicable, although final amendments remain to be completed via updated ordinance and/or adopted by parliament.

The Fund stated that the authorities met three Indicative targets (ITs) by end-September: the floors:

• On net tax revenue collected by FBR; and
• Budgetary health and education spending; and the ceiling on
• Net accumulation of tax refund arrears. However, the IT on power sector payment arrears was missed by a large margin, mostly due to under-recoveries in August as well as a lower-than-anticipated tariff set in the annual rebasing

In end-September 2023, the authorities met six quantitative Performance Criteria (PCs); the floors on

• Net international reserves of the SBP;
• Targeted cash transfer spending (BISP); and the ceilings on
• The SBP’s FX swap/forward book;
• Net domestic assets of the SBP;
• Net government budgetary borrowing from the SBP; and
• The amount of government guarantees.

They also met the two continuous PCs on:

• Zero new flow of SBP credit to the government; and
• Zero external public payment arrears.

The ceiling on the general government primary budget deficit was missed by a small margin, with this deviation accounted for by technical factors (exchange rate valuation of external financing flows).