PR No.42 Joint Press Conference Of Senator Mohammad Ishaq Dar, Finance Minister And Mr. Harald Finger, Imf Mission Chief On Successful Completion Of Tenth Review Under Imf Extended Fund Facility Program At Dubai Islamabad
1. Pakistan and IMF have successfully completed negotiations on the Tenth Review under the 3-year Extended Fund Facility (EFF) program for an amount of $6.4 billion. This will lead to release of the tenth tranche of US$ 500 million.
2. Completion of the Tenth Review is indicative of government’s commitment in implementing structural reforms in areas of taxation, energy, monetary/financial sectors and public sector enterprises.
Overall Program Performance
Our performance on the tenth review has been highly satisfactory:
3. We met all of the end-December 2015 Quantitative Performance Criteria – SBP’s Net Domestic Assets, Net International Reserves, Foreign currency swap/forward position by significant margins. Similarly, the Quantitative Performance Criteria on government borrowing from the SBP and budget deficit for end-December, 2015 have been over performed underlining government’s commitment to sustained fiscal consolidation.
4. The indicative target for end-September, 2015 on targeted cash transfer through BISP; and on accumulation of power sector arrears were also met.
5. FBR not only achieved its second quarter target of Rs. 750 billion but also recouped Rs. 35 billion of the shortfall of the first quarter. Against the indicative target of Rs. 1390 billion for the first six months of the year, FBR has collected Rs 1385 billion. The collections improved by around 18.2 percent as compared to the last financial year.
6. We achieved real GDP growth rate of 4.24 percent in FY 2014/15, which is highest in the last 7 years. IMF has projected a growth rate of 4.5 percent in FY 2015/16. However, the government retains its goal of achieving growth of 5.5 percent this fiscal year. The challenging factor is decline in cotton production. However, other real sector indicators continued to improve.
7. LSM growth remained robust at 4.43 percent during Jul-Nov 2015-16 compared to 3.15 percent last year. The major sectors like Automobiles registered growth at 32.3 percent followed by Fertilizers 15.2 percent, Chemicals 11.0 percent, and Rubber Products 9.3 percent. The cement dispatches witnessed uptick during first half of the current fiscal year; and credit expansion during Jul-Jan 2015-16 remained above 100 percent along with improvement in electricity and gas supplies indicating robust economic activities and reflecting investor confidence. CPEC will further play a significant role in economic activity.
8. Inflation continued on a downward trajectory. Headline inflation (CPI) fell from 8.62 percent in FY 2013-14 to 4.53 percent in FY 2014-15. During first six months (Jul-Dec) of FY 2015-16, CPI inflation has been further contained at 2.1 percent. This is the lowest inflation in last 12 years.
Balance of Payments
9. Stable growth in workers’ remittances and low oil price continued to help contain the current account deficit. As of 29 Jan 2016, foreign exchange reserves of SBP stood at USD 15.435 billion and that of scheduled banks at USD 4.84 billion (totaling to over $ 20.275 billion).
10. Performance of the banking sector remained robust as earnings surged and solvency strengthened. The sector witnessed a y-o-y growth of 33 percent in profitability coupled with strong solvency as reflected in Capital Adequacy Ratio (CAR) of 17.3 percent, well above the 10.25 percent minimum requirement.
11. We are continuing with the financial sector reforms agenda for strengthening the legal, regulatory and supervisory framework for safeguarding stability of the financial sector.
12. We inherited the budget deficit of over 8 percent of GDP which has been brought down to 5.37 percent of GDP in FY 2014-15.
13. We are determined to continue on a path of fiscal consolidation to achieve our budget deficit target of 4.3 percent of GDP in FY2015/16. We are also committed to reduce public debt, and lay the foundations for a more sustained growth.
14. Despite the fact that the government is reducing its fiscal deficit, allocation for Public Sector Development Program (PSDP) has doubled and social safety net expenditures has tripled through three budgets of the current government.
15. The ratio of FBR taxes to GDP has improved significantlyover the last two years, from 8.45 percent in FY 2012-13 to 9.5 percent in FY 2014-15, and is projected to increase to 10.1 percent in the current year.
16. Our efforts for broadening the tax base will be strengthened further through the recent introduction of “Voluntary Tax Compliance Scheme” for traders and by enhanced use of IT and information inflow from multiple sources.
17. Government is committed to support the poor and most vulnerable segments of the population through BISP. With significant expansion in allocation of BISP cash transfers, which has been enhanced from Rs.40 billion in FY 2012-13 to Rs.105 billion in FY 2015-16, increasing the coverage from 3.7 million to 5.4 million families and extensively enhanced income support annual stipend from Rs.12000 to Rs.18000 during this period.
18. In partnership with the provincial governments, significant progress has been made in the rollout of the education-Conditional Cash Transfers (CCT) to the targeted needy students. Currently, more than 1 million children are beneficiaries of the CCT in 32 districts across the country. We will further expand the total number of children benefitting from the program to 1.3 million by end-June 2016.
19. We continue to diversify financing from both domestic and external sources, lengthen the maturity profile of domestic debt and improve the balance between domestic and external debt. To achieve these objectives we are working to strengthen the Debt Policy Coordination Office (DPCO). We have appointed the Risk Management staff and draft of the Medium Term Debt Management Strategy is ready to be published shortly.
20. The energy sector reform is on priority agenda of the government and is regularly monitored by the Prime Minister through the Cabinet Committee on Energy. To implement the reforms:
i. We are working to reduce energy shortages with special emphasis to ensure sustained supply to industry with the goal of adding 10,000 MW of electricity to the system by March 2018.
ii. We have added imported Liquefied Natural Gas (LNG) to the system, which will help in improving energy supply in the country.
Business Climate Reforms
21. For improving business climate, we have undertaken measures to increase ease of doing business, which includes the initiative of launching One Stop Shop (OSS) both physical and virtual. We are also undertaking development of a new plan to overhaul our efforts to improve the ease of doing business.
22. We have developed a comprehensive National Financial Inclusion Strategy (NFIS) to implement financial reforms to meet financing needs of the marginalized segments of society. The strategy lays particular emphasis on including the female gender into financial inclusion. SBP has issued guidelines to commercial banks for opening “Asaan” Simple and Small Accounts.
Public Sector Entities
23. We are working to reform or enter into strategic partnerships with private sector partners for PSEs, focusing on improving performance, reducing losses and improvement in service delivery.
Before closing, I would like to reiterate that Pakistan was committed to successfully implement the macroeconomic stability program announced by the Government in June 2013; and the excellent achievement in meeting the performance criteria under the program reflected the seriousness with which the program is being accomplished. It is not only the quantitative targets but also the rich agenda of structural reforms being undertaken with the aim of stabilization of economy and creation of room for faster growth and poverty reduction.
We have successfully completed the negotiations of the Tenth Review. This has been a good team effort from both sides. As we move forward, our effort would be to consolidate the economic gains achieved so far towards macroeconomic stability and work towards higher growth trajectory and job creation.
I would like to compliment Mr. Harald Finger, the IMF Mission Chief and his team for an outstanding job they have done in conducting the Tenth Quarterly Review.