The three-year arrangement approved by the IMF Executive Board under the Extended Fund Facility (EFF) is to support the country's economic reform programme to promote inclusive growth, an official statement said. (JPN/Agencies)
The Executive Board's approval enables an initial disbursement by the IMF of about USD 540 million. The remaining amount will be evenly disbursed over the duration of the programme subject to quarterly reviews, the IMF said.
According to the IMF, the programme is expected to help the Pakistani economy rebound, forestall a balance of payments crisis and rebuild reserves, reduce the fiscal deficit, and undertake comprehensive structural reforms to boost investment and growth.
"Adherence to the programme is also expected to catalyze the mobilization of resources from other donors," the IMF said. Despite the challenges it faces, Pakistan is a country with abundant potential, given its geographical location and its rich human and natural resources, it added.
Pakistan facing serious economic challenges: IMF
Pakistan is facing 'serious economic challenges' and it needs to carry out a set of comprehensive economic reforms, the IMF said hours after it approved financial assistance of USD 6.7 billion to prevent it from a brink of economic collapse.
"Pakistan is facing serious economic challenges. Overall vulnerabilities and crisis risks are high, with subpar growth and unsustainable fiscal and balance of payments positions," said Nemat Shafik, the IMF Deputy Managing Director and Acting Chair.
Pakistan's 2013-14 federal budget represents an important initial step towards the needed fiscal consolidation, she said. "However to ensure medium-term fiscal sustainability and create fiscal space for social and investment spending, it is important to raise the tax-to-GDP ratio, including by broadening the tax base through a reduction in exemptions and concessions and extending taxation to areas currently not fully covered by the tax net," she said.
Tax administration overhaul is also required and provinces should contribute fully to the adjustment effort, she added. The IMF official said that monetary and exchange rate policies should be geared to rebuilding external buffers, direct lending to the government should cease and efforts to improve independence of monetary policy need to be stepped up to pave the way for improved price stability.
RISKS TO BANKING SECTOR MANAGEABLE
Shafik said that risks to the banking sector are manageable, although the undercapitalization of vulnerable banks needs to be addressed. "To achieve sustained and inclusive growth, short-term macroeconomic measures must be complemented by significant structural and governance reforms,” Shafik said.
"The recently announced energy policy will address the long-standing problems in the sector, which constitute the most crucial constraint on growth and have generated large fiscal costs," Shafik said.
In addition, the trade regime and public sector enterprises needs to be liberalized, she said. Noting that protecting the most vulnerable from the direct and indirect impacts of fiscal consolidation and price adjustments is a priority, she said coverage and benefits of these programs should be expanded as savings from tariff adjustments and fiscal space are realized.
According to IMF, Pakistan's growth trajectory has borne the tolls of internal security and macroeconomic imbalances, as well as an uncertain global and regional environment.
The three-year arrangement approved by the IMF Executive Board under the Extended Fund Facility (EFF) is to support the country's economic reform programme to promote inclusive growth, an official statement said.