IMF Staff Mission To Pakistan Concluded

by Mary Swire, Tax-News.com, Hong Kong

18 May 2009

An International Monetary Fund (IMF) staff mission, led by Mr Adnan Mazarei, visited Dubai earlier this month to initiate discussions on the second review under Pakistan’s SDR5.169bn (USD7.6bn) Stand-By Arrangement (SBA), approved by the Executive Board of the IMF on November 24, 2008.

A first disbursement of SDR2.067bn (USD3.1bn) was made on November 26, 2008, and a second one of SDR568.5m (USD847m) on April 1, 2009, after completion of the first program review.

At the conclusion of its work, the mission issued the following statement on May 11:

“The IMF mission held extensive discussions with government and central bank officials on Pakistan’s recent economic performance, the outlook for FY 2009/10,1 and the policies needed to boost growth while consolidating macroeconomic stability to cope with the global crisis. The authorities’ expressed strong resolve to sustain prudent macroeconomic policies, strengthen and broaden the social safety net, and enhance Pakistan’s medium-term growth prospects."

“The authorities’ program remains on track. All the program’s quantitative performance criteria for end-March 2009 were observed and structural reforms are progressing broadly as envisaged in many areas. While the external current account deficit has started to narrow and inflation has declined, the drop in the demand for exports and uncertainty regarding the prospects for workers’ remittances pose risks to the external outlook."

“Discussions focused on the fiscal program and Pakistan’s financing needs. The slowing economy, additional donor support, and the need to protect priority expenditures call for a relaxation of the fiscal deficit target for 2009/10. This relaxation would provide fiscal space to absorb additional donor support, boost growth, and increase social, development, and security spending, including for internally displaced persons. The authorities and the mission reached preliminary understandings to increase the 2009/10 deficit target up to 4.6% of GDP, compared to the original target of 3.4% of GDP, to provide for additional spending associated with donor support (of up to 1.2% of GDP)."

“The authorities and the IMF team agreed that the Tokyo package should be regarded as a bridge toward the stronger medium-term revenue effort. In this regard, it is crucial to reinforce efforts to increase the tax revenue-to-GDP ratio through tax policy and administration reforms. Moreover, the need to manage carefully expenditure was agreed, in particular to contain and eliminate poorly targeted subsidies, including those for electricity, while maintaining the life-line tariff to protect vulnerable groups."

“Structural reforms have progressed broadly as envisaged in many areas. Electricity tariffs will be adjusted to eliminate tariff differential subsidies, legislative amendments to harmonize the income tax and general sales tax laws; a new draft SBP law has been prepared to increase the SBP’s operational autonomy; and the authorities are preparing amendments of the banking law to improve the effectiveness of SBP enforcement powers. In addition, a plan to deal with the circular debt (inter-corporate debt in the energy sector) is expected to be finalized soon."

“The targets for the quarter ended March 31 have been met. The authorities and the IMF staff will continue their discussions on the 2009/10 budget and Pakistan’s financing needs over the next few weeks to complete the discussions of the second review under Pakistan’s SBA,” the statement concluded.

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