Statement by the Staff Representative on Pakistan Executive Board Meeting
Author: International Monetary Fund
Publication Date:
02 Jun 2010
eISBN:
9781455205202
Language:
English
Keywords:
ISCR; CR; financing; IFC strategy; deficit; outlay; expenditure restraint; rupee deposit; staff appraisal; price inflation; monthly salary; qualitative assessment; Stocks; Budget planning and preparation; assessment of performance
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The 2010 staff report for the Fourth Review Under the Stand-By Arrangement addresses economic challenges faced by Pakistan. The implementation of the structural agenda faced delays but politically difficult reforms were assured to be executed. The resulting fiscal pressures had been expected to be largely offset by restraining nonpriority current spending. The authorities have shown their determination to pursue difficult, but necessary, reforms to implement the program despite lower-than-promised external assistance. IMF staff supported the requested rephasing of access and modifications to the performance criteria.

Abstract

The 2010 staff report for the Fourth Review Under the Stand-By Arrangement addresses economic challenges faced by Pakistan. The implementation of the structural agenda faced delays but politically difficult reforms were assured to be executed. The resulting fiscal pressures had been expected to be largely offset by restraining nonpriority current spending. The authorities have shown their determination to pursue difficult, but necessary, reforms to implement the program despite lower-than-promised external assistance. IMF staff supported the requested rephasing of access and modifications to the performance criteria.

May 14, 2010

1. This statement summarizes information that has become available since the issuance of the staff report (SM/10/76) on May 3, 2010. The new information does not change the thrust of the staff appraisal.

2. Final fiscal data show that the overall budget deficit (excluding grants) for July 2009–March 2010 was Rs 626 billion, Rs 10 billion lower than what was reported in Table 1 of the Supplementary Memorandum on Economic and Financial Policies of May 3. 2010. Accordingly, the margin of nonobservance (relative to the adjusted target) was Rs 52 billion or 0.3 percent of GDP. Other, minor, data revisions do not alter the qualitative assessment of performance (Table 1).

Table 1.

Pakistan: Quantitative Performance Criteria, June 2009-June 2010

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Note:

denotes performance criteria.

Excludes IMF.

In addition to the quantitative performance criteria for end-December, end-March, and end-June the relevant purchases will also be subject to the completion of reviews with the fourth review to be completed no earlier than February 27, 2010, and the fifth review to be completed no earlier than May 30, 2010.

To be used in assessing respective adjustors for program targets.

Data for end-September has been revised. This does not change the assessment of quantitative performance criteria.

3. The current account deficit in July 2009-March 2010 was 1.4 percent of GDP (0.6 percent of GDP lower than projected in the staff report), compared with 5.1 percent of GDP in July 2008–March 2009. Official reserves increased to about $11.6 billion in early May, following receipt of a further $656 million from the U.S. Coalition Support Fund.

4. Inflation increased to 13.3 percent (y-o-y) in April 2010, reflecting both food and non-food price inflation, the latter due to higher petroleum product and cotton prices.

5. The Greek crisis has had a small impact. The Karachi stock market declined by 3.6 percent between April 22 and May 11, while Pakistan’s EMBIG spread increased from 460 bps in late April to 543 bps on May 11.

6. The authorities continue to work toward the July 1 deadline for the introduction of VAT. Technical preparations are advancing. Some progress has been made in bridging the differences with the Province of Sindh, and the authorities continue to expect that the federal and all the provincial VAT bills will be approved by end-May.

7. Discussions continue with the World Bank and the Asian Development Bank staffs on a framework for reducing tariff differential subsidies and increasing supply in the electricity sector. The authorities have implemented measures to reduce load shedding including a shorter work week and opening hours for shops, and asked industry to operate on weekends and to move their non-working days to during the week. They are also increasing gas supplies for electricity generation. However, no announcement of the 6-percent increase in electricity tariffs, to be implemented retroactively from April 1, 2010, has been made.

8. The government recently announced a minimum monthly salary of Rs 7,000 for laborers, promised to regularize the rights of all contractual workers, and proposed to consolidate labor laws to protect workers’ rights. Since monthly wages in the public sector already exceed Rs 7,000, the enforcement of the new minimum wage policy is not expected to have significant consequences for the federal and provincial budgets.

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Cover IMF Staff Country Reports
Pakistan: Fourth Review Under the Stand-By Arrangement, Requests for Waivers of Performance Criteria, Modification of Performance Criteria, and Rephasing of Access: Staff Report; Staff Statement and Supplement; Press Release on the Executive Board Discussion; and Statement by the Executive Director for Pakistan.
Author: International Monetary Fund
Volume/Issue:
Volume 2010: Issue 158
Publisher:
International Monetary Fund
ISBN:
9781455205202
ISSN:
1934-7685
Pages:
81
DOI:
https://doi.org/10.5089/9781455205202.002