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© 2008 International Monetary Fund

January 2008

IMF Country Report No. 08/21

Pakistan: 2007 Article IV Consultation—Staff Report; Staff Statement; Public Information Notice on the Executive Board Discussion; and Statement by the Executive Director for Pakistan

Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. In the context of the Article IV consultation with Pakistan, the following documents have been released and are included in this package:

  • the staff report for the 2007 Article IV consultation, prepared by a staff team of the IMF, following discussions that ended on September 20, 2007, with the officials of Pakistan on economic developments and policies. Based on information available at the time of these discussions, the staff report was completed on November 8, 2007. The views expressed in the staff report are those of the staff team and do not necessarily reflect the views of the Executive Board of the IMF.

  • a staff statement of December 17, 2007 updating information on recent developments.

  • a Public Information Notice (PIN) summarizing the views of the Executive Board as expressed during its December 17, 2007 discussion of the staff report that concluded the Article IV consultation.

  • a statement by the Executive Director for Pakistan.

The policy of publication of staff reports and other documents allows for the deletion of market-sensitive information.

To assist the IMF in evaluating the publication policy, reader comments are invited and may be sent by e-mail to

Copies of this report are available to the public from

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Price: $18.00 a copy

International Monetary Fund

Washington, D.C.

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Staff Report for the 2007 Article IV Consultation

Prepared by the Staff Representatives for the 2007 Consultation with Pakistan

Approved by Amor Tahari and Adnan Mazarei

November 8, 2007

  • Discussions for the 2007 Article IV consultation were held in Islamabad and Karachi during September 7–20, and continued in Washington D.C. during October 19–20. The team comprised Messrs. Di Tata (head), Bartsch, Bonato and Ms. George (all MCD), and Mr. Sun (PDR). The mission was assisted by Mr. Lorie (Senior Resident Representative). Mr. Khan (MCD) participated in some of the policy discussions.

  • The mission met with Prime Minister Aziz, State Bank of Pakistan (SBP) Governor Akhtar, Finance Advisor Shah, Finance Secretary Waqar, other senior officials, and private sector representatives. A press statement was released at the conclusion of the mission (

  • The last Article IV consultation was concluded on November 22, 2006. Directors’ comments may be found at

  • Pakistan has accepted the obligations of Article VIII. The exchange rate regime has been classified as a de facto conventional peg since 2005. Pakistan has participated in the GDDS since 2003. At end-September 2007, total Fund credit and loans outstanding to Pakistan amounted to SDR 922.0 million (89.2 percent of quota).


  • Executive Summary

  • I. Introduction

  • II. Recent Economic Developments

  • III. The Government’s Economic Program for 2007/08

  • IV. Report on the Discussions

    • A. Economic Outlook and Policies for 2007/08

    • B. The Medium-Term Outlook

    • C. Key Structural Reforms

    • D. Other Issues

  • V. Staff Appraisal

  • Text Boxes

  • 1. The Boom in Foreign Direct Investment

  • 2. External Competitiveness and Exchange Rate Assessment

  • Tables

  • 1. Selected Economic Indicators, 2002/03–2007/08

  • 2. Balance of Payments, 2002/03–2007/08

  • 3. Monetary Survey and Analytical Balance Sheet of the State Bank of Pakistan, 2002/03–2007/08

  • 4a. Consolidated Government Budget, 2002/03–2007/08 (In billions of Pakistani rupees)

  • 4b. Consolidated Government Budget, 2002/03–2007/08 (In percent of GDP)

  • 5. Medium-Term Fiscal Framework, 2005/06–2011/12

  • 6. Medium-Term Balance of Payments, 2005/06–2011/12

  • 7. Public Sector Debt Sustainability Framework, 2002/03–2011/12

  • 8. External Debt Sustainability Framework, 2002/03–2011/12

  • 9. Selected Vulnerability Indicators, 2002/03–2006/07

  • 10. Financial Soundness Indicators for the Banking System, 2002–07

  • 11. Millennium Development Goals, 1990–2005

  • Figures

  • 1. Public Debt Sustainability—Bound Tests

  • 2. External Debt Sustainability—Bound Tests

Executive Summary

Economic developments in Pakistan in fiscal year 2006/07 were generally good, but the external current account deficit widened. Real GDP growth increased to 7 percent, the debt-to-GDP ratio continued to decline, and gross international reserves rose to US$14.3 billion (4½ months of imports). Average inflation, however, remained relatively high at close to 8 percent. Notwithstanding a significant decline in import growth, the current account deficit widened to 4.9 percent of GDP, owing mainly to significantly slower export growth. The deficit was more than covered, however, by record-high capital inflows, including foreign direct investment. Political uncertainties continue in light of the government’s recent declaration of a state of emergency and questions about the timing of parliamentary elections. The authorities were of the view that the reforms and institutional changes introduced in recent years would be maintained by the government that will be elected by the new parliament, regardless of its political orientation.

The discussions focused on the prospects for 2007/08 and the policies needed to reduce the current account deficit to a more sustainable level over the medium term. The authorities’ economic program for the current fiscal year envisages a reduction in the fiscal deficit to 4 percent of GDP, from 4.3 percent in 2006/07. A recent tightening of monetary conditions is expected to lead to slower broad money growth, with average inflation targeted to decline to 6½ percent.

Although the outlook for 2007/08 remains favorable, the authorities’ policies may not be sufficient to achieve their inflation target and reduce the external current account deficit significantly. Real GDP growth is projected by the staff at 6½–7 percent in 2007/08. Capital inflows would more than cover the current account deficit, but there are risks that some inflows could be delayed. Against this background, the staff recommended a stronger fiscal adjustment effort accompanied by a somewhat tighter monetary stance and greater exchange rate flexibility. The authorities considered it very difficult to implement a greater fiscal effort given the political calendar, and thought that exchange rate stability was important at this juncture to maintain confidence. Although they saw no need to increase interest rates in the immediate future, they said that rates would be kept under review to ensure that their objective of reducing net central bank credit to the government was met.

Looking beyond 2007/08, the authorities agreed with the staff on the need to reduce the external current account deficit gradually to about 3½ percent of GDP over the medium term. There were some differences of view, however, with respect to the fiscal effort necessary to achieve this objective. Although the authorities recognized the importance of strengthening revenue mobilization, they envisaged a less ambitious effort than the staff.

Discussions on structural issues focused on reforms to deepen domestic financial markets, public financial management and fiscal reporting, and trade issues.

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Staff Report for the 2007 Article IV Consultation Informational Annex

November 8, 2007

Table of Contents

  • Annexes

  • I. Relations with the Fund

  • II. Relations with the World Bank Group

  • III. Statistical Issues

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December 17, 2007

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Public Information Notice (PIN) No. 07/143


December 20, 2007

International Monetary Fund

700 19th Street, NW

Washington, D. C. 20431 USA

On December 17, 2007, the Executive Board of the International Monetary Fund (IMF) concluded the 2007 Article IV consultation with Pakistan.1

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December 17, 2007

Pakistan: 2007 Article IV Consultation: Staff Report; Staff Statement; Public Information Notice on the Executive Board Discussion; and Statement by the Executive Director for Pakistan
Author: International Monetary Fund