WASHINGTON: The International Monetary Fund (IMF) officially endorsed Pakistan’s economic recovery but urged the country to continue key structural reforms if it wants to consolidate these gains.
“The economic recovery has gradually strengthened and short-term vulnerabilities have further receded on the back of improved macroeconomic stability and progress on structural reforms,” said a statement issued on Tuesday by the IMF headquarters in Washington.
“Preserving and consolidating macroeconomic stability and further advances with key structural reforms, including beyond the programme’s horizon, are needed to foster stronger and more inclusive growth,” the IMF statement added.
On Monday, the IMF’s executive board completed the 11th review of Pakistan’s economic performance under a three-year programme supported by an Extended Fund Facility (EFF) arrangement. The board also approved the 12th tranche of more than $500 million for Pakistan under this facility.
In Sept 2013, the board approved a 36-month extended arrangement of $6.64 billion under the EFF, which was 216 per cent of Pakistan’s current quota at the IMF.
In the statement, the IMF noted that Pakistani authorities were on track to achieve the programme’s end-year fiscal targets, and praised their commitment to continue with gradual fiscal consolidation in 2016-17 as well.
The IMF pointed out that amendments to Pakistan’s Fiscal Responsibility and Debt Limitation Act would strengthen the anchor for medium-term fiscal policy, supporting fiscal sustainability and medium-term macroeconomic stability.
The IMF also welcomed the country’s new framework for public-private partnerships, which, it said, would foster much needed growth-supporting investments and help manage associated fiscal risks.
“Sustaining progress with tax administration reforms, with a view to widening the tax base, is needed to increase tax revenues and create needed fiscal space for priority infrastructure and to reinforce social expenditures,” it added.
The IMF reminded the government that “efforts to complete the energy sector reform should remain a priority”.
It noted that the authorities’ decision to further contain the accumulation of power sector arrears in the remainder of the programme was a welcome step, as was their focus on further strengthening the performance of power distribution companies and the updating of the power sector arrears reduction plan.
The statement noted that Pakistan’s foreign exchange reserves had been progressively rebuilt under the programme arranged with the IMF, and the continued accumulation of international reserves will further bolster external buffers and reduce vulnerabilities.
Emphasising the need for maintaining a prudent monetary policy stance, the IMF said that such a policy would help preserve the achievements in containing inflation and would support macroeconomic stability.
The IMF welcomed progress in strengthening the State Bank of Pakistan’s autonomy, and urged the country to address the remaining recommendations of the 2013 IMF Safeguards Assessment, as doing so was important to further strengthen State Bank’s autonomy.
The IMF reminded Pakistan’s policy makers that advancing financial sector reforms was important to reinforce financial sector stability and development.
It also urged them to take additional important steps, such as moving ahead with establishing a deposit insurance scheme and strengthening the regulatory and supervisory framework.
“Continued progress with structural reforms is needed to raise Pakistan’s growth potential,” the IMF said, adding that restructuring and privatising loss-making public sector enterprises (PSEs) remained a priority to ensure their financial viability, reduce fiscal costs and strengthen the efficiency of the economy.
In light of the delays in the privatisation agenda earlier in the year, the IMF described the authorities’ commitment to attract private sector participation, while putting in place measures to reduce PSEs’ financial losses, as a step in the right direction.
Published in Dawn, June 29th, 2016