ISLAMABAD/WASHINGTON: The International Monetary Fund said Saturday that Pakistan’s economic reform programme remained broadly on track, but warned over rising inflation.
Pakistan received a $6.7 billion IMF bailout package last year to help the country achieve economic reforms, particularly in its troubled energy sector.
“The IMF is encouraged by the overall progress made in pushing ahead with policies to strengthen macroeconomic stability and reviving investment and growth,” Jeffrey Franks, the fund’s mission chief for Pakistan, said in a statement in Islamabad.
The IMF’s Pakistan staff mission visited Dubai from May 1-9 to conduct discussions on the third review of the bailout package, which was approved by the fund’s executive board last September. The mission met senior officials from the finance ministry and the State Bank of Pakistan (SBP), weeks ahead of a scheduled $550 million fourth loan tranche that Pakistan is set to receive. “The IMF mission held constructive discussions with government and central bank officials on the economic performance under the EFF program and is encouraged by the overall progress made in pushing ahead with policies to strengthen macroeconomic stability and reviving investment and growth,” Franks said. The mission reached staff-level understandings with the authorities on a set of economic policies detailed in an updated Memorandum of Economic and Financial Policies.
“Economic indicators are generally improving, with growth gaining momentum, external finance improving, and credit to the private sector rising,” Franks said, but added that core and headline inflation were also rising.
The inflation rate currently stands at 9.2 percent but the IMF wants Pakistan to ‘target an additional reduction in inflation towards their medium-term goal of 6-7 percent in the next fiscal year’, which starts on July 1.
“Led by large-scale manufacturing and service sectors, GDP will expand by about 3.3 percent in financial year 2013-14, accelerating further to reach four percent next year,” he said.
The mission also noted an improvement in the balance of payments situation and efforts being made by Pakistan to build up SBP reserves and stabilise sentiment in the foreign exchange market.
“The authorities’ reform program remains broadly on track,” Franks said, describing as ‘strong’ the fiscal performance of the government during the first nine months of the current financial year 2013-14.
A report on the third review has been tentatively scheduled for consideration by the IMF Executive Board in late June, Franks said.
If approved, it would make about $550 million available to Pakistan, he added.
The indicative target on social transfers to the poor under the Benazir Income Support Program (BISP) was also met, the mission said, and welcomed the government’s efforts to deepen its support to the poor through the BISP program and the commitment to ensure timely payments to 4.7 million eligible families.
“The mission recognises the authorities’ determination to pursue agreed structural reforms to enhance medium term growth prospects. Two of three structural benchmarks for this review were met, including the structural benchmark on tax administration and the benchmark on the audit of the National Electric Power Regulatory Authority (NEPRA). The mission supports the government’s ambitious privatization agenda and encourages stronger reform efforts in loss-making companies remaining in the public sector to improve resource allocation and limit poor performance”.
The fund noted that the Pakistani authorities are also preparing trade policy and business climate reforms which will improve investment and economic growth.
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