International Monetary Fund (IMF) has successfully concluded the 8th review of Pakistan’s economic performance, paving the way for release of the next tranche of $502 million under a 3-year Extended Fund Facility.
The staff-level agreement reached after a series of meetings in Dubai between IMF and Pakistani officials from July 29-August 7 will be presented for approval before the IMF Management and the Executive Board. Upon completion of this review the next tranche of the loan will be released, according to an Aug. 7 IMF statement.
Pakistan secured the $6.6 billion loan from the IMF in 2013 to avoid default on its external payments.
“We welcome the authorities’ commitment and progress in implementing their economic program to improve economic resilience, promote economic growth and private sector job creation in Pakistan,” said IMF team leader Harald Finger after meetings with Pakistani delegation headed by Finance Minister Ishaq Dar.
All end-June 2015 program targets related to monetary policy were met, in some cases with a significant margin. However, the end-June 2015 performance criteria on the budget deficit and government borrowing from the SBP were missed with a small margin. In addition, the indicative targets on tax revenue and accumulation of circular debt deviated from end-June 2015 program targets.
Noting improvement in the economy, the IMF team expected Pakistan’s real GDP growth to increase to 4.5 percent this fiscal year, helped by macroeconomic stability, low oil prices, planned improvements in the domestic energy supply, and investment related to the China-Pakistan Economic Corridor.
Inflation dropped to 1.8 percent in July, but is expected to increase in the coming months with the anticipated stabilization of commodity prices. Despite declining exports, the external current account deficit narrowed to 0.8 percent of GDP in FY 2014/15 owing to favorable oil prices and strong growth of remittances.
Foreign exchange reserves of the Central Bank continued to increase at a healthy pace, and reached US$13.5 billion at end-June 2015, covering three months of imports.
“Overall, the authorities’ reform program has significantly reduced near-term risks with substantial narrowing of the budget deficit and rebuilding of the foreign exchange buffers. Alongside, increasing social spending under BISP is helping the most vulnerable,” the IMF official said.
“In the period ahead, consolidating these gains and focusing the reform efforts on overcoming structural challenges still facing Pakistan will be important to achieve higher exports, investment, jobs, and growth,” Mr. Finger noted.