ISLAMABAD: A staff mission of the International Monetary Fund (IMF) on Friday concluded its visit to Pakistan with all praise to authorities for over-performing on first quarter targets under the $6 billion Extended Fund Facility to pave the disbursement of $450 million early next month.

The mission led by Ernesto Ramirez-Rigo, however, hinted at a couple of minor shortcomings that authorities would need to deliver before IMF executive board takes up for formal approval of the staff-level agreement. These related to power sector tariffs and effective taxation on cigarettes.

The Fund also lowered inflation outlook for FY20 at 11.8 per cent average against its 13pc estimate only a few days ago as part of its regional economic outlook. That, in a sense, was an indicator towards possibility of lower discount rates in coming monetary policy by end of this month. The saving rates have already been lowered this week following decline in secondary market yields on bonds.

At the conclusion of a 10-day visit, Rigo announced to have reached staff level agreement on the first review saying “all performance criteria for end-September were met with comfortable margins and progress continues towards meeting all structural benchmarks” adding the “work continues towards completing the remaining structural benchmarks for end-September”.

Structural benchmarks remain ‘work in progress’; release of $450m tranche next month

The mission also appreciated the State Bank of Pakistan (SBP) on its overall stance and performance particularly for delivering “higher than expected” net international reserves. It said the government’s policies had started to bear fruit, helping to reverse the buildup of vulnerabilities and restore economic stability. “The external and fiscal deficits are narrowing, inflation is expected to decline, and growth, although slow, remains positive”, it summarised.

It said the near-term macroeconomic outlook broadly remained unchanged from the time of the programme approval in July, with gradually strengthening activity and average inflation expected to decelerate to 11.8pc in FY20. “However, domestic and international risks remain, and structural economic challenges persist,” it added.

The delegation emphasised that prudence needed to be maintained to reduce fiscal vulnerabilities, including by carefully executing the FY20 budget, implementing the new Public Finance Management legislation, and continuing to broaden the tax base by “removing preferential tax treatments and exemptions” while protecting critical social and development spending.

Sustaining sound policies and advancing structural reforms remain key priorities to enhance resilience and pave the way for stronger and sustainable growth, the Fund said. In this regard, it called for advancing the strategy for electricity sector reforms, agreed with international partners to put the sector on a sound footing, and remove recurrent arrears and accumulation of debt. The mission, along with the World Bank, also approved a circular debt reduction plan, according to a statement by Ministry of Energy.

The mission said further efforts to strengthen state-owned entities’ governance and operations, advance anti-corruption reform, and improving the business environment were key to mobilise investment and support growth and job creation.

It said the Pakistani authorities and IMF also reached a staff-level agreement on policies and reforms needed to complete the first review under the facility. The agreement is subject to approval by IMF management and the board.

“Completion of the review will enable disbursement of SDR328 million (or around $450m) and will help unlock significant funding from bilateral and multilateral partners,” the Fund explained.

It further noted the significant progress made in improving the Anti-Money Laundering/Combating Financing Terror framework, although additional work is needed before March 2020. International partners remain committed to supporting the authorities’ reform efforts, providing the necessary financing assurances.

On the macroeconomic front, signs that economic stability is gradually taking hold are steadily emerging. The external position is strengthening, underpinned by an orderly transition to a flexible, market-determined exchange rate by SBP.

The fund said the budgetary revenue collections were growing due to efforts on tax administration and policy changes, and despite the ongoing compression in import-related taxes. Inflationary pressures are expected to recede soon, reflecting an appropriate monetary stance. Importantly, measures to strengthen the social safety net are being implemented, and development spending is been prioritised.

The mission appreciated that authorities recognised that decisive implementation of these policies was indispensable for entrenching macroeconomic stability and restoring robust and balanced growth.

Published in Dawn, November 9th, 2019