1. Pakistan and the IMF have successfully completed negotiations on the Twelfth and final Review under the 3-year Extended Fund Facility (EFF) program for an amount of $6.4 billion.
2. Successful completion of the last Review is indicative of government’s strong commitment in implementing difficult structural reforms in the areas of taxation, energy, monetary/financial sectors and public sector enterprises.
Overall Program Performance
Our performance throughout the program culminating in the Twelfth Review has been highly satisfactory:
3. We met the end-June 2016 Quantitative Performance Criteria on Net International Reserves, Foreign currency swap/forward position, and government borrowing from SBP by significant margins. The targets on Net Domestic Assets and budget deficit were missed marginally.
4. The indicative target for end-June, 2016 on targeted cash transfers through BISP and on power sector arrears were met.
5. FBR not only achieved its annual target of Rs.3104 billion but exceeded it. This indeed is a remarkable achievement as no downward revision was made in FBR revenue targets and the originally fixed target was achieved and exceeded which is an unprecedented accomplishment and speaks of the success of the economic policies being followed by the present Government. The performance of FBR becomes even more creditable when viewed in the context of the shortfall of Rs.40 billion recorded in the first quarter. In the subsequent quarters, the indicative targets were met wiping out the deficit of the first quarter. Against an end-year target of Rs.3104 billion, FBR collected Rs.3115 billion, according to provisional figures, which shows a growth in excess of 20 percent, over Rs.2589 billion collected in FY2015. In the process, the figure of FBR’s tax-to-GDP ratio registered a substantial increase of one percent.
6. We achieved real GDP growth rate of 4.71 percent in FY 2016, which is the highest in the last 8 years. Since FY 2014, we have maintained GDP growth rate of above 4 percent. For the next fiscal year, GDP growth is targeted at 5.7 percent which will gradually steer to 7 percent in FY 2017.
7. The industrial sector recorded a growth of 6.8 percent during FY 2016 which is the highest in the last eight years. LSM growth remained robust at 4.61 percent during FY 2016 compared to 3.29 percent last fiscal year. Automobiles registered growth at 23.4 percent followed by Fertilizers 16 percent, Rubber products 11.6 percent, Leather products 12.2 percent, and Chemicals 10 percent, Cement 10.4 percent and its dispatches witnessed uptick by over 17 percent; and there has been a continued credit expansion. A welcome development is the increase in fixed investment. Electricity and gas supplies continued to improve since the start of the current fiscal year. The CPEC will also play a significant role in further boosting economic activities.
8. The Pakistan Stock Exchange (PSX) has scaled new height of 39,800 index on 01st August, 2016 crossing the highest index achieved previously in August, 2015 indicating robust economic activity and reflecting investor confidence.
9. Inflation remained contained to less than 3 percent at 2.89 percent during the period FY 2016 as compared to 8.62 percent in FY 2014 and 4.53 percent in FY 2015.
Balance of Payments
10. The external sector is stable on the back of continued flows from IFIs, low oil prices, rising remittances albeit at a slower pace, which helped narrow down the current account deficit and maintained stability in foreign exchange market. The foreign exchange reserves increased to $23 billion as of 22nd July 2016 of which SBP reserves stood at $18.037 billion and that of scheduled banks at $4.960 billion. The net International Reserves of the SBP have increased from a low of negative $2.5 billion at the start of the program to positive $7.5 billion by end-June 2016.
Financial and Fiscal
11. Performance of the banking sector remained steady with higher earnings and robust solvency. The sector has high Return on Assets (RoA) of 2.2 percent and strong Capital Adequacy Ratio (CAR) of 16.1 percent, well above the 10.25 percent minimum regulatory requirement.
12. We are continuing with the financial sector reforms agenda for strengthening the legal, regulatory and supervisory framework aimed at safeguarding stability of the financial sector.
13. The budget deficit which stood at over 8 percent of GDP in FY 2013 was brought down to 5.3 percent in FY 2015 and to 4.6 percent in FY 2016. We are also committed to reduce public debt, and lay the foundations for a more sustained growth.
14. Despite the fact that the government is reducing its fiscal deficit, allocation for Public Sector Development Program (PSDP) has more than doubled and social safety net expenditures have increased by over 300 percent through the four budgets of the current government.
15. The ratio of FBR’s tax to GDP has improved significantly over the last three years, from 8.45 percent in FY 2013 to 10.5 percent in FY 2016, which is beyond the projected increase of 10.2 percent for the period.
16. Government is committed to support the poor and the most vulnerable segments of population through BISP. With significant expansion in allocation of BISP cash transfers, which have been enhanced from Rs.40 billion in FY 2013 to Rs.115 billion in FY 2017 increasing the coverage from 3.7 million to 5.46 million families; and income support annual stipend from Rs.12000 to Rs.18800 during this period. The Government has disbursed more than Rs.250 billion to these poorest families during the same period.
17. In partnership with provincial governments, significant progress has been made in rollout of the education-Conditional Cash Transfers (CCTs) to the targeted needy students. In comparison to 56,000 students in 2013 currently, more than 1.3 million children are beneficiaries of the CCT in 32 districts across the country. We will further expand the total number of children benefitting from the program to 1.6 million by June, 2017. Besides improving the payment mechanisms by introducing the bio-metric based payments, Government has also initiated the National Socio Economic Registry (NSER) update for a more objective and scientific targeting of deserving families.
18. We continue to diversify financing from both domestic and external sources, lengthen the maturity profile of domestic debt and improve the balance between domestic and external debt. To achieve these objectives, we are working to further strengthen the Debt Policy Coordination Office (DPCO). We have appointed the Risk Management staff; and the Medium Term Debt Management Strategy (MTDS) has already been published. Rate setting between retail and wholesale markets have also been synchronized.
19. The Energy sector reforms are on priority agenda of the Government and are regularly monitored by the Prime Minister through the Cabinet Committee on Energy. To implement the reforms:
i. We are working to reduce energy shortages with special emphasis to ensure sustained supply to industry with the goal of adding over 10,000 MW of electricity to the system by March 2018 along with measures to make the sector self-sustainable in line with the demands of a modern power sector;
ii. We have added imported Liquefied Natural Gas (LNG) to the system, which has improved energy supply in the country, especially to the industrial sector, as the import of LNG has doubled to 400 mmcfd.
Business Climate Reforms
20. For improving business climate, we have finalized and put into implementation a new countrywide ease of doing business reform strategy with time bound measures to strengthen business climate and foster private investments.
21. We have developed a comprehensive National Financial Inclusion Strategy (NFIS) to implement financial reforms to meet financing needs of the marginalized and unbanked segments of society. The strategy lays particular emphasis on including the female gender into financial inclusion. Under SBP guidelines for opening ‘Asaan’ Simple and Small Accounts, banks and Microfinance banks have opened more than one million accounts. In addition, over 15 million m-wallets (digital accounts) have been opened in the country.
Public Sector Entities (PSEs)
22. We are continuously working to reform PSEs focusing on improving performance, reducing losses and improvement in service delivery.
Before closing, I would like to reiterate that Pakistan is committed to successfully implement the macroeconomic stability program announced by the Government in June 2013; and positive achievement in meeting the performance criteria under the Program reflected the seriousness with which the Program is being concluded. It is not only the quantitative targets but also the rich agenda of structural reforms being undertaken with the aim of stabilization of economy and creation of room for faster and inclusive growth, and poverty reduction.
We have successfully completed the negotiations of the last Review. This has been a good team effort from both sides. As we move forward, our effort would be to consolidate the economic gains achieved so far towards macroeconomic stability and work towards higher growth and jobs creation.
I would like to compliment Mr. Harald Finger, the IMF Mission Chief and his team for an outstanding job they have done in conducting the last Quarterly Review.
Source : Ministry of Foreign Affairs