December 23, 2019

Ernesto Ramirez Rigo, Mission Chief for Pakistan, Middle East and Central Asia Department

Olga Stankova, Special Assistant to the Director, Communications Department

MS. STANKOVA: Good morning, and good afternoon to those who are joining us from other time zones. Thank you for joining the call on the First Review under the Pakistan Expanded Fund Facility Arrangement. As you know, the IMF Executive Board discussed the review last week. I will now turn the call over to the Mission Chief for Pakistan, Ernesto Ramirez Rigo. I would like also to remind you that this call, and the documents that you have available now under embargo, will made public at 10:00 a.m. Washington, D.C. time.

MR. RAMIREZ RIGO: Thank you, Olga. Good afternoon, for those joining us from Pakistan, and good morning for those that are joining us in our time zone.

I would like us to start with some quick remarks and a summary of how we see things at the completion of the first review. And then obviously as Olga explained, I will be happy to answer your questions.

So, as a summary description I would say that program implementations have been on track for the first review. All the performance criteria for the targets of the first quarter were met or exceeded, in particular those on the external sector, foreign currency reserves and NDA, likewise on the fiscal side.

Having said that, the economic outlook remains unchanged relative to what we had at the time of the program approval within the deceleration of economic activity as was expected at the time of program approval, with only two revisions ; one revision for inflation, which we have slightly lower in part because some of the pass through from the exchange rate adjustments has been more moderate than we anticipated.

And at the same time, we have also made some adjustment to the export-import composition of the current account, but without any major substantial changes in the total current account deficit share of GDP that we expect to see this year.

Beyond that what really matters is that the first review, or like any other review of a Fund program, requires two components. One, is what I mentioned at the beginning (the performance criteria for the quarter). And secondly, and more important, is the forward-looking component in terms of the policies that the authorities are committed to.

In that sense, and that is really what was the key for the review, we see that the authorities remain strongly committed to all the objectives of the program. We are now at the stage in the program where we move to the area of structural reforms. These ones are really important to build an institutional framework for the country so that there is no repetition of the boom bust cycles of the past.

I would like to highlight three areas where we think it is important that things continue to progress. One, the quality of the fiscal adjustment, while we have already started to see improvements on the fiscal accounts, it is very important that this improvement is based on better underpinning for it to be permanent. And that will require continued work on the tax revenue side, rather than just on total revenue increases, or containing expenditure.

As you probably recall at the time of approval of the programs, the design of this program is based on tax revenue mobilization and not so much on reducing expenditures. This strategy is because our assessment is that Pakistan is still lacking in the area of development spending, such as infrastructure, and we feel that it is very important that fiscal space is created to meet this development needs.

So, the quality of fiscal adjustment will start to have a larger and larger focus in the program. That will of course include tax policy reforms, something that will be of relevance for the following year budget. And then one other structural area which supplement the fiscal adjustment, is tackling the issue of circular debt in the energy sector. The authorities have put together a comprehensive strategy to address the flow and now this strategy has started to be implemented, that will be the purpose for our forthcoming reviews.

Likewise, there is need for the NEPRA Legislation, that is regulators for the energy sector, to have more automaticity and the capacity to implement when necessary (inaudible) to support the reduction in circular debt. That's something that is a benchmark for the end of December, and we look forward to look at those reforms. And of course, very important to us, is the independence of the Central Bank, the legislation now is a structural -- submitted legislation is now a structural benchmark for March.

This was originally set for the end of December 2019, but our technical team in the Legal Department, after looking at the necessary changes, and in consultation with the authorities we decided to spend some more time working on this to provide technical assistance, and we set the benchmark so that it would be more feasible, and still very ambitious, but more feasible.

And I think I will leave it at that. And Olga, if it's okay with you, we can start taking questions.

MS. STANKOVA: Certainly, thank you, Ernesto. Steven, would you please, proceed with the questions, if there's any.

QUESTIONER: I have been following this closely, but just a quick question. I'm wondering, there's a big gap between the Staff approval in July and the -- sorry -- in November, and the Board approval just last week. Was there some delay in getting some of the measures implemented?

MS. STANKOVA: Yes, Ernesto.

MR. RAMIREZ RIGO: Thank you, Olga. No, there were no delays of any kind, it's just simply the process, the time that it takes internally in the Fund to get the documents to the Board. And just so that everybody understands, following the staff-level agreement which it is between the staff and the authorities, we have to prepare the documents which go through an internal review process that normally takes about a couple of weeks to be completed once management approves. It would be at that moment in which management says it's okay to do everything that is presented to them.

Then the document is issued to our IMF Board, which requires a minimum calculation period of two weeks. So that gives you an idea of the time frame that it takes to produce these documents. So, I think the fact that we manage to get to Board on December 19 was pretty good time considering all our internal processes.

QUESTIONER: I'm just wondering what is the most concerning issue at this stage, still, for the Pakistan economy?

MR. RAMIREZ RIGO: Do you mean --

QUESTIONER: Concerning issues, according to you, at this stage of -- the reform program had started, but what is the most concerning points according to you?

MR. RAMIREZ RIGO: Well, what we have seen so far is a major improvement in the external position of Pakistan that was one of the objectives of the program. A very smooth transition to market-determined exchange rate, it was also a major component of the program. So those are areas where we feel that the program is delivering very good early results.

On the fiscal side, I think it's an area where we will have to employ more of our time in the months to come. It's an area where it's not just about the improvement on the total -- on the headline number on the fiscal headline number, it is about the quality. But we want to be very mindful to minimize the impact of the adjustments on economic growth, this is why we also put the emphasis on tax revenue rather than expenditure, which normally comes with larger multipliers.

We calibrated that very carefully, but we want to see more tax revenue mobilization, and that's an area which is not easy, it's very tough, there are many political economic issues around that. And that's where we think it's an area of concern that we should continue to make progress there.

MS. STANKOVA: All right. Thank you for joining the call. Just a reminder that the call is under embargo along with the documents until 10:00 a.m. D.C. Time, and if you have any questions during this period please feel free to follow up with the phone now, and after this -- before it is public.

MR. RAMIREZ RIGO: Thank you.