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Pakistan: IMF Executive Board Completes Seventh Review under the EFF

Press Release No. 15/301 June 26, 2015

The Executive Board of the International Monetary Fund (IMF) on June 26, 2015 completed the seventh review of Pakistan’s economic performance under a three-year program supported by an Extended Fund Facility (EFF) arrangement. The Board’s decision enables the immediate disbursement of an amount equivalent to SDR 360 million (about US$506.4 million), bringing total disbursements under the arrangement to SDR 2.88 billion (about US$ 4.05 billion).

On September 4, 2013, the Executive Board approved the three-year extended arrangement under the EFF in the amount of SDR 4.393 billion (about US$6.18 billion, or 425 percent of Pakistan’s quota at the IMF). (See Press release No. 13/322).

Following the Executive Board discussion on Pakistan, Mr. Mitsuhiro Furusawa, Deputy Managing Director and Acting Chair, said:

“Progress toward macroeconomic stabilization is encouraging, thanks to strong performance under the program and despite significant legal, political, and security challenges. Macroeconomic imbalances are being gradually addressed. Building on these gains, continued efforts are needed to make the economic reform more sustainable and boost inclusive growth.

“The planned fiscal adjustment in the context of the FY2015/16 budget is appropriate. The authorities’ plans to broaden the tax base, including eliminating tax exemptions and concessions, are welcome, though significant scope remains for increasing tax compliance and enforcement. The authorities are implementing plans to reduce costly and inefficient electricity subsidies, and steps are being taken to contain arrears in the electricity sector, while boosting support for the most vulnerable. Legal challenges might still pose risks to the authorities’ efforts, and their commitment to contingency measures is encouraging. Building on recent success in diversifying budgetary financing and reducing the reliance on central bank financing, continued strengthening of public debt management remains a priority.

“Foreign exchange reserves have continued to increase and monetary policy has remained appropriate under current macroeconomic conditions. Following the planned amendments to the central bank law that will already address some important shortcomings to central bank independence, further efforts will be needed to bolster the SBP’s governance structure and autonomy. Building on the recently started implementation of the improved interest rate corridor, efforts to strengthen central bank operations should continue, including through strengthened risk management and internal operations.

“The financial sector remains stable and progress in bank capitalization is welcome. A number of legislative reforms to strengthen financial stability and inclusion are underway. Efforts to combat financing terrorism, anti-money laundering, and tax offenses should continue.

“Structural reforms are progressing, although more needs to be done, and the risk of legal challenges remains. While regulatory reform continues, the power sector remains a key bottleneck for growth and a drain on public finances. The authorities’ adoption of a comprehensive medium-term plan to deal with the accumulation of arrears in the electricity sector is welcome in this respect. Continued efforts are needed in the areas of privatization of public sector enterprises, trade policy, and business climate reforms.”