KARACHI: The International Monetary Fund (IMF) has completed the first review of Pakistan’s economic performance under the Extended Fund Facility (EFF), approving its second bailout installment of SDR 328 million (about $452.4 million).
With the second tranche, total disbursements since the beginning of the bailout program reach SDR 1,044 million ($1,440 million).
“Pakistan’s program is on track and has started to bear fruit. However, risks remain elevated. Strong ownership and steadfast reform implementation are critical to entrench macroeconomic stability and support robust and balanced growth,” David Lipton, IMF first deputy managing director, said in a statement on Friday, following the IMF executive board’s decision.
Pakistan had formally approached the global lender last year, seeking financial assistance to stabilize the economy struck by balance of payment crises. The IMF executive board approved the 39-month, $6 billion bailout program for Pakistan on July 3.
The government has been implementing the IMF program. Its initial stages have led to an increase in many utility prices, including energy costs.
“The authorities are committed to sustaining the progress on fiscal adjustment to place debt on a downward path. The planned reforms include strengthening tax revenue mobilization, including the elimination of tax exemptions and loopholes, and prudent expenditure policies,” Lipton said.
Pakistan is towing a market-based exchange rate which the authorities say is bringing stability in the currency exchange market.
“The flexible, market-determined exchange rate remains essential to cushion the economy against external shocks and rebuild reserve buffers. The current monetary stance is appropriately tight and should only be eased once disinflation is firmly entrenched. Strengthening the State Bank of Pakistan’s autonomy and governance will support these efforts,” Lipton said.
The IMF has also asked Pakistan to speed up progress in anti-money laundering (AML) and countering financing of terrorism (CFT) measures, as it stays on the Financial Action Task Force’s (FATF) gray list, and may face blacklisting in case of failure to comply with the FATF’s 27-point action plan.
“Faster progress is needed to improve the AML/CFT framework, supported by technical assistance from the IMF and other capacity development providers. Swift adoption of all the necessary measures is needed to exit the FATF’s list of jurisdictions with AML/CFT deficiencies,” Lipton noted.
IMF views that the authorities have adopted a comprehensive plan to address the accumulation of arrears in the power sector. Its full implementation is key to improve collection, reduce losses, and enhance governance. Timely and regular adjustment of energy tariffs will bring the sector in line with cost recovery.
Efforts are ongoing to further improve the business environment, strengthen governance, and foster private sector investment.
Pakistan has prioritized to privatize around 17 state-run entities to move faster on its privatization agenda that IMF says would help the country generate revenue for the government.
“Reform of the state-owned enterprise sector will help put Pakistan’s public finances on a sustainable path and have positive spillovers by leveling the playing field and improving the provision of services,” Lipton said.