ISLAMABAD: Pakistan has assured International Monetary Fund (IMF) for bringing down the inflation rate within a range to 6-7 percent by 2015-16 from the current level of 8.8 percent, sources told Daily Times on Tuesday.
The commitment was made with the IMF when Pakistan entered into an Extended Fund Facility (EFF) programme for Special Drawing Rights (SDR) $5.393 billion in even quarterly instalments over a period of three years subject to successful quarterly reviews.
Officials in the Ministry of Finance said so far Pakistan has undergone three successful quarterly reviews and has received a total SDR $1440 million in four instalments. SDR is composed of four world major currencies in which international trade usually held. First instalment was made available after signing of the arrangement in September 2013 and the remaining three instalments of SDR $360 million each were received after successful completion of quarterly reviews in December 2013, March 2014 and July 2014 respectively.
The government has committed to brig down the inflation rate, which always hurts people’s standard of living and they have to pay more for the same goods and services. Pakistan, being a developing country is facing all such fiscal and monetary issues, which affect the country badly, the officials added.
Pakistan entered in EFF programme with IMF to overcome several emergent economic issues. Substandard economic performance during past few years and Gross Domestic Products (GDP) growth averaged only three percent over the past five years. Significant low level improvement in living standards or fully absorb the growing labour force with a rising inflation rate of over 8 percent kept country masses in poor economic state.
The officials said domestic private investment dropped from 14 percent of GDP in 2007-08 to an estimated 10.9 percent in 2012-13. Weak private sector credit growth contributed to the decline. The State Bank of Pakistan gross reserves dropped to $6 billion (under one and half months of imports) as of end-June 2013.
The fiscal deficit 2012-13 (excluding grants) was over 8.5 percent of GDP, well above the original budget target (4.7 percent of GDP) due to slippages on both revenues and expenditures. The revenue shortfall of 1.25 percent of the GDP relative to the 2012-13 budgets was largely explained by the underperformance in tax collections in the previous fiscal year, inadequate tax administration and a slowdown in economic activity. Higher expenditures (2.75 percent of the GDP) reflected higher energy subsidies.
The officials said the energy sector remained saddled with considerable problems that have led to unreliable electricity supply and large fiscal costs, including price distortions, insufficient collections, costly and poorly targeted subsidies, inadequate governance and low efficiency in energy supply and distribution, regulatory inadequacies and insufficient investment in new energy production and modernisation.
As a result, power outages averaged around 8 to 10 hours a day, constraining production and employment. Output losses estimated at 2 percent of GDP annually. Keeping in view such dismal economic situation of the country, the government has entered an agreement with the IMF, so as to keep the economy on right track, the officials maintained.
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