ISLAMABAD

Pakistan and International Monetary Fund (IMF) have successfully concluded talks for the eighth economic review under Extended Fund Facility (EFF) that would pave way for releasing ninth tranche worth of $502 million in next couple of months.

The IMF has accepted granting waivers on some of the economic targets, which were missed by Pakistan during previous financial year 2014-15. According to a private TV channel, the IMF granted Pakistan waivers on key conditions of reducing the budget deficit and lowering borrowings from the central bank.The government had missed performance criteria on the budget deficit and government borrowing from the SBP by the end-June 2015 In addition, the indicative targets on tax revenue and accumulation of circular debt deviated from end-June 2015 programme targets.

An IMF staff mission, led by Harald Finger, visited Dubai during July 29-August 7, 2015 conducted discussions on the eighth review of Pakistan’s economic programme supported by a three-year IMF Extended Fund Facility (EFF) arrangement. The staff team met with Finance Minister Ishaq Dar, SBP Governor Ashraf Wathra and other officials.

“Pakistan’s economy continues to improve. Real GDP growth is expected to increase to 4.5 percent this fiscal year, helped by macroeconomic stability, low oil prices, planned improvements in the domestic energy supply and investment related to the China-Pakistan Economic Corridor. Inflation dropped to 1.8 percent in July, but is expected to increase in the coming months with the anticipated stabilisation of commodity prices. Despite declining exports, the external current account deficit narrowed to 0.8 percent of GDP in FY 2014/15 owing to favourable oil prices and strong growth of remittances. Foreign exchange reserves of the SBP continued to increase at a healthy pace, and reached $13.5 billion at end-June 2015, covering three months of imports”, IMF mission chief stated in a statement.

He further said, “In the period ahead, consolidating these gains and focusing the reform efforts on overcoming structural challenges still facing Pakistan will be important to achieve higher exports, investment, jobs, and growth. In this context, we welcome the authorities’ plans to continue strengthening public finances and external reserve buffers, and to accelerate efforts to widen the tax net to create space for infrastructure investment and social assistance. In addition, efforts continue to restructure loss-making public enterprises, including through strategic partnerships with the private sector, advance the energy sector reform, improve the business climate, and further expand coverage under BISP to protect the most vulnerable. Decisive progress in these areas will help strengthen competitiveness and resilience of the economy and transform Pakistan into a dynamic emerging market economy”.

Addressing the media in Dubai, Finance Minister Ishaq Dar said that Pakistan and IMF have successfully completed negotiations on the Eighth Review, which will lead to release of ninth tranche of over $502 million. “We met end-June 2015 Quantitative Performance Criteria on the SBP’s Net International Reserves, Net Domestic Assets, and foreign currency swap/ forward position and the indicative target on power sector payment arrears”, he added.

Talking about missed targets, he said that as agreed the provinces could not give surplus, which led to missing the Quantitative Performance Criteria on the fiscal deficit and government borrowing from the SBP. The budget deficit remained at 5.3 percent of the GDP (Rs 1447 billion) as against the target of 4.9 percent of the GDP (Rs 1387 billion).

He further said that indicative target on tax revenue was missed by a small margin, however revenue collection for FY 2014/15 improved by around 15pc as compared to the last financial year. The government had collected Rs 2588 billion during previous year as against thrice revised target of Rs 2605 billion.

Finance Minister said that government would make the State Bank of Pakistan as autonomous body through legislation from parliament. He added that government and IMF believed that inflation rate would increase in the country. “CPEC (China-Pakistan Economic Corridor) will further play a significant role in economic activity”, he said.

Ishaq Dar further said that inflation continued on downward trajectory, the headline inflation (CPI) fell from 8.6 percent in FY 2013-14 to 4.5 percent in FY 2014-15. In July 2015 CPI fell to a 12-year low of 1.8 percent as compared to 7.9 percent of the corresponding month of last year.

Talking about economic indicators, Finance Minister said that tax-to-GDP ratio increased from 9.7 percent of GDP in FY2012/13 to 10.4 percent in FY2013/14, and reached 11.02 percent in FY2014/15 by elimination of SROs, broadening of tax base and improved tax administration. “We achieved real GDP growth rate of 4.24pc in FY 2014/15, which is highest in the last 7 years. IMF has projected a growth rate of 4.5 percent in FY 2015/16. However the government retains its goal of achieving growth of 5.5 percent this fiscal year”, Ishaq Dar remarked.

Foreign exchange reserves of SBP stood at $13.8 billion and that of scheduled banks at $5.0 billion as of 31st July 2015. “Government is committed to support the poor and most vulnerable segments of the population through BISP.