ISLAMABAD - The International Monetary Fund (IMF) has commended ‘strong performance’ of Pakistani authorities and noted progress in restoring economic stability, improving growth prospects and reducing crisis risks.
The Executive Board of the Fund approved release of 7th tranche loan of $501.4 million on Friday and urged the country to enhance central bank independence and increase gas prices for better allocation of supply and enhance production. Following the approval of the tranche, Acting Chair and Deputy Managing Director Mitsuhiro Furusawa issued the following statement:
The authorities’ strong performance under Pakistan’s Fund-supported program is to be commended. Progress has been made in restoring economic stability, improving growth prospects, and reducing crisis risks. It will be important to build on these gains and continue determined efforts to implement the reform agenda to achieve economic transformation and higher sustainable growth.
Fiscal consolidation is underway through efforts to broaden the tax base and reduce costly and inefficient electricity subsidies. Scope remains to increase tax compliance and enforcement and further reduce energy subsidies, while continuing to protect the most vulnerable. Enhanced public debt management remains a priority, together with further efforts to diversify fiscal financing and reduce reliance on central bank borrowing.
Monetary policy remains prudent and foreign exchange reserves are increasing. However, legislation to enhance central bank independence remains crucial and should conform to international best practices. Efforts to improve central bank functioning should also continue, including through improved functioning of the interest rate corridor, effective open market operations, and strengthened risk management and internal operations.
The financial sector remains stable and profitable and progress in bank capitalisation is satisfactory. Further reforms are needed to safeguard financial stability, and a number of legislative actions are underway in this regard. Commendable efforts to combat terrorism financing, money laundering, and tax offenses have been made and would need to be sustained.
Structural reforms are progressing, albeit with some difficulties. While the power sector regulatory reform continues, progress in the gas sector has been uneven. Implementation of gas price rationalisation should help better allocate current supply and encourage new production.
The current environment of lower oil prices provides an opportunity to speed-up electricity tariff rationalisation while continuing to improve the operations and collections of energy companies. The authorities remain committed to privatisation of public sector enterprises, as well as to trade policy and business climate reforms.
After this review and disbursement, the total disbursements under the current bailout program would now reach $3.7 billion. The country’s foreign exchange reserves would enhance to $16.7 billion next week with release of this tranche. The State Bank of Pakistan’s reserves would increase to $11.6 billion.