IMF demands more action from Pakistan under bailout

The International Monetary Fund (IMF) said that Pakistan, a nation reeling under financial trouble and internal security problems and bailed out by the global lender in September, should pursue its reform agenda more vigorously to propel growth in its sagging economy.

In a review report, the IMF said particular attention has to be paid on challenges on the balance of payments and rebuilding reserves, enhancing tax revenues by broadening the country's tax net, improving tax administration, protecting  most vulnerable, and safeguarding the stability of the financial system.

However the lender acknowledged that structural benchmark for the first review has been met. It also noted that the progress is satisfactory in fiscal and structural reforms.

''All quantitative performance criteria for end-September 2013 were observed except for the one on net international reserves. The indicative target on social transfer payments was also missed,'' the report said.

Pakistan's central bank is taking corrective measures to meet future reserve targets and to rebuild reserves that have fallen to a critically low level.

Perceived risks apart from balance of payments that could hinder economic growth include security problems, energy challenges and delays in implementing program reforms.

''In particular, if reserves accumulation is not pursued, or if accumulation process is not managed well, there is a risk of disorderly foreign exchange market conditions which could devolve into broader balance of payments problems,'' the IMF report cautioned.

The troubled nation was bailed out by the IMF under its Extended Fund Facility (EFF) by providing a loan of SDR 4.4 billion ($6.7 billion) or 425 per cent of Pakistan's quota at the IMF, which carried a string of conditions including stringent austerity measures.

The 36-month EFF arrangement is intended to support the country's reform programme to bolster economic growth.

The conditions included rationalisation of gas tariffs and introduction of a new gas levy to generate additional revenues, privatisation of several public enterprises, and introducing amendments to strengthen legal framework.

It had been agreed that the loan amount would be paid out evenly based on quarterly reviews.

An initial tranche of SDR 360 million ($544 million) was disbursed in September. Further to the first review of the country's performance, the second tranche of SDR 360 million ($554 million), has been received on 23 December, according to the central bank.

The country's foreign exchange reserves remained under pressure during the first half of the fiscal 2013-2014 (July-December). Net foreign exchange reserves with the country's central bank the State Bank of Pakistan, diminished to less than half from over $6 billion at the end of June to $2.9 billion in the first week of December, hitting its lowest level in 12 years.

Pakistan's total liquid assets including foreign exchange reserves held by banks stood at $8.5 billion as on 27 December, including around $3.6 billion held in the central bank, supported by recent EEF inflows.

The IMF expects the country's GDP to grow 2.8 per cent in the current fiscal, 0.3-per cent higher than its initial forecast, which is expected to improve further to 3.7 per cent in 2014-2015 and will continue to accelerate in the near term, on the back of the country's reforms programme.

Inflation is projected to remain at around 10 per cent and the current account deficit is expected to be about 1 per cent of GDP, higher than the 0.4 per cent estimated earlier.

Fiscal deficit is expected to come down to around 3.5 per cent of GDP in 2016-2017 from the base level of 8.8 per cent in 2012-2013.