ISLAMABAD -  The government has set new deadlines for privatising two losses making entities, June and August of next year (2017) for Pakistan Steel Mills (PSM) and Pakistan International Airlines (PIA) respectively.

"We are in the process of separating PIA's core and non-core activities and will approve the transaction structure for offering a minority stake to a strategic partner and/or the general public by end-December 2016 and complete the bidding process by August 2017," the government of Pakistan has told the International Monetary Fund (IMF). Meanwhile, IMF has released the report after completion of twelfth and final review of Pakistan's three-year economic reform programme supported by an Extended Fund Facility (EFF) arrangement.

Pakistan has further stated that bidding process of PSM would be completed by June 2017. The federal government had resumed the privatisation process for PSM in July 2016 following inconclusive discussions with provincial government of Sindh over a transfer of ownership.

Pakistan had also given assurance to the Fund that privatisation of Kot Addu Power Company (KAPCO), a major generation company, would be completed by March 2017. Furthermore, preparatory work has started to conduct an Initial Public Offering (IPO) for FESCO by February 2017, to be followed by IPOs for IESCO and LESCO by the end of FY 2016/17.

"We will finalize the transaction of SME Bank by end-December 2016, the divestment of government's shares in Mari Petroleum Limited (MPCL) to existing shareholders by October 2016 and the IPO for SLIC by end-March 2017", the government of Pakistan said.

Pakistan has indicated that they will not request a follow-up arrangement after the EFF-supported programme expired on September 30, 2016. Given that Pakistan's outstanding credit to the Fund exceeds 200 percent of the quota and SDR 1.5 billion, staff supports Pakistan entering into post-program monitoring. The Fund also recommended that Pakistan returned to the 12-month cycle for Article IV Consultations, the IMF remarked.

The Fund has warned that domestically, policy slippages, further delays in restructuring or privatising PSEs, ongoing legal challenges to electricity surcharges and revenue measures, political uncertainty, and the still difficult security conditions could affect economic activity and undermine fiscal consolidation.

The IMF has projected that Pakistan's economic growth rate would likely increase moderately to 5 percent in FY2016/17 from 4.7 percent of last year, also supported by an investment upturn related to the China Pakistan Economic Corridor (CPEC). Headline inflation is expected to enhance to 5.2 percent in FY 2016/17 as against 2.9 percent (on average) during the last fiscal year. The current account deficit would likely widen to about 1.5 percent of GDP in FY 2016/17 from 0.9 percent of GDP in FY 2015/16 due to the partial recovery in oil prices, higher CPEC-related imports and an expected slowdown in remittances growth.

The Fund has expressed fear that budget deficit target of 3.8 percent of the GDP could be missed if there is a significant statistical discrepancy ((amounting to 0.7 percent of GDP)) in the fiscal accounts as happened in FY 2015/16. It has also noted that the provinces' contribution to the targeted fiscal deficit could again fall short of expectations, which might lead in missing the target.

"The authorities committed to finalize the delayed notification of the FY2016/17 gas tariff by October 2016 and resume regular gas notification moving forward", the IMF stated. The Oil and Gas Regulatory Authority (OGRA) has already recommended an increase of 36 percent in the prices of gas, for the consumers of both the gas utilities, for the current fiscal. The decision will empower the Gas utilities to collect Rs 341 billion from the consumers for the current fiscal.

Pakistan has assured the Fund that it would refrain from granting concessions, exemptions and any form of amnesty, enhance tax policy measures, and accelerate administrative reforms aimed at broadening the tax base and modernizing our tax system.

The stock of circular debt declined to Rs321 billion at end-June 2016. The stock of debt held in PHCL was maintained at Rs 335 billion. In order to improve DISCOs' performance, the government stated that it has signed performance contracts, set quarterly performance targets, improved monitoring and enforcement, strengthened legislation to pursue electricity theft, upgraded the electricity transmission and distribution network, improved revenue-based load management and the provision of incentives to collectors. As a result, the government has reduced DISCOs' distribution losses to 17.9 percent in FY 2015/16 from 18.9 percent in FY 2012/13 and increased collection rates to 92.6 percent in FY 2015/16, from 87.2 percent in FY 2012/13.

Addressing a video news conference from Washington, IMF Mission Chief Herald Finger said that government should devalue its currency by 5-20 percent in order to enhance the country's exports, which are on the declining side.  He stressed that government should accelerate the pace of privatization programme and power sector reforms.

He projected that government would not able to achieve the GDP growth target of 5.7 percent during ongoing financial year, as it would remain at around five percent.

He said that power sector arrears went from adding about Rs200 billion in new arrears every year to just Rs8 billion last year due to the increase in cost of electricity, controlling line losses and improve billing collection.