Author: Mrs. Anjum Shahnawaz

Washington, DC: International Monetary Fund (IMF) on Wednesday said that the Pakistani authorities have shown strong commitment in providing accurate data in future so the Executive Board of the IMF decided not to require further remedial action in connection with the breach obligations.

A statement issued by the IMF said that the Executive Board of the International Monetary Fund (IMF) approved a 39-month Extended Arrangement under the Extended Fund Facility (EFF) for Pakistan in the amount of SDR 4,268 billion (about US$6 billion), equivalent to 210 percent of quota, on July 3, 2019.

The first review under the arrangement was completed by the Executive Board on December 19, 2019, based upon, inter alia, the reported observance of the quantitative performance criteria (PC) at end-September 2019, including the amount of government guarantees. Upon completion of the first review under the EFF, Pakistan made a purchase equivalent to SDR 328 million (about US$452.4 million).

Subsequently, new information that came to the authorities’ attention, and which was shared with Fund staff, has revealed that the data on government guarantees dating back to FY 2016 was reported inaccurately.

The revised data indicates a nonobservance of the PC on government guarantees at end-September 2019 by a margin of Rs357 billion (about 0.9 percent of GDP), which resulted in a non-complying purchase and a breach of obligations under Article VIII, Section 5 of the IMF Articles of Agreement.

The authorities previously reported that the PC had been met with a margin of PRs 55 billion (0.1 percent of GDP) at end-September 2019. The statistical revision only had a small impact on public debt.

The authorities have taken strong corrective actions to address institutional and technical short-comings that gave rise to the inaccurate information, including:

(i) creating a working group to reconcile and cross-check guarantees and debt data;

(ii) announcing additional functions for the Debt Policy Coordination Office (DPCO), including to act as custodian of all guarantees issued by the federal government; and

(iii) publishing a semi-annual debt bulletin that consolidates key debt statistics. Beyond these actions, the authorities have committed to include a list of all new guarantees expected to be issued in the FY 2022 budget submitted to Parliament.

At the conclusion of the meeting, Deputy Managing Director Antoinette Sayeh and Acting Chair, stated:

“The Executive Board of the International Monetary Fund (IMF) reviewed Pakistan’s remedial actions and data revisions linked to a noncomplying purchase under the Extended Arrangement under the Extended Fund Facility as well as a breach of obligations under Article VIII, Section 5. The non-complying purchase arose as a result of a lack of inter-agency coordination in the compilation of government guarantees provided by the federal government to state-owned enterprises that contributed to incorrect estimates of government guarantees starting as far back as FY 2016.

In view of the strong and proactive commitment by Pakistan to provide timely and accurate data to the IMF in the future, the Executive Board decided not to require further remedial action in connection with the breach of obligations under Article VIII, Section 5.

As the authorities have taken appropriate corrective measures since the purchase in December 2019, the Executive Board also granted a waiver for the nonobservance of the quantitative performance criterion.”

Washington, DC: The Executive Board of the International Monetary Fund (IMF) on Wednesday allowed disbursement of $500 million under Extended Fund Facility (EFF) for Pakistan.

The IMF board completed the second through fifth reviews of the Extended Arrangement under the EFF for Pakistan. The board’s decision allows for an immediate disbursement of SDR 350 million (about US$500 million), bringing total purchases for budget support under the arrangement to about US$2 billion, said a statement issued by the IMF.

Pakistan’s 39-month EFF arrangement was approved by the Executive Board on July 3, 2019 about $6 billion at the time of approval of the arrangement, or 210 percent of quota.

The program aims to support Pakistan’s policies to help the economy and save lives and livelihoods amid the still unfolding Covid-19 pandemic, ensure macroeconomic and debt sustainability, and advance structural reforms to lay the foundations for strong, job-rich, and long-lasting growth that benefits all Pakistanis.

Following the Executive Board discussion on Pakistan, Ms. Antoinette Sayeh, Deputy Managing Director and Acting Chair, issued the following statement:

“The Pakistani authorities have continued to make satisfactory progress under the Fund-supported program, which has been an important policy anchor during an unprecedented period. While the Covid-19 pandemic continues to pose challenges, the authorities’ policies have been critical in supporting the economy and saving lives and livelihoods. The authorities have also continued to advance their reform agenda in key areas, including on consolidating central bank autonomy, reforming corporate taxation, bolstering management of state-owned enterprises, and improving cost recovery and regulation in the power sector.

“Reflecting the challenges from the unfolding pandemic and the authorities’ commitment to the medium-term objectives under the EFF, the policy mix has been recalibrated to strike an appropriate balance between supporting the economy, ensuring debt sustainability, and advancing structural reforms while maintaining social cohesion. Strong ownership and steadfast reform implementation remain crucial in light of unusually high uncertainty and risks.

“Fiscal performance in the first half of FY 2021 was prudent, providing targeted support and maintaining stability. Going forward, further sustained efforts, including broadening the revenue base carefully managing spending and securing provincial contributions, will help achieve a lasting improvement in public finances and place debt on a downward path. Reaching the FY 2022 fiscal targets rests on the reform of both general sales and personal income taxation. Protecting social spending and boosting social safety nets remain vital to mitigate social costs and garner broad support for reform.

“The current monetary stance is appropriate and supports the nascent recovery. Entrenching stable and low inflation requires a data-driven approach for future policy rate actions, further supported by strengthening of the State Bank of Pakistan’s autonomy and governance. The market-determined exchange rate remains essential to absorb external shocks and rebuild reserve buffers.

“Recent measures have helped contain the accumulation of new arrears in the energy sector. Vigorously following through with the updated IFI-supported circular debt management plan and enactment of the National Electric Power Regulatory Authority Act amendments would help restore financial viability through management improvements, cost reductions, regular tariff adjustments, and better targeting of subsidies.

“Despite recent improvements, further efforts to remove structural impediments will strengthen economic productivity, confidence, and private sector investment. These include measures to (i) bolster the governance, transparency, and efficiency of the vast SOE sector; (ii) boost the business environment and job creation; and (iii) foster governance and strengthen the effectiveness of anti-corruption institutions. Also, completing the much-advanced action plan on AML/CFT is essential.”