![Page 1: IMF Extended Fund Facility Arrangement for Pakistan · IMF-Pakistan: A Historical Perspective •Pakistan Joined IMF on July 11 1950 •18 Lending arrangements since 1958, •Why?](https://reader034.vdocuments.us/reader034/viewer/2022042300/5ecb3b093f9b70002637ae49/html5/thumbnails/1.jpg)
IMF Extended Fund Facility Arrangement for Pakistan
Chartered Financial Analysts Society of Pakistan, July 22, 2019IMF Resident Representative: Ms. Teresa Daban Sanchez
![Page 2: IMF Extended Fund Facility Arrangement for Pakistan · IMF-Pakistan: A Historical Perspective •Pakistan Joined IMF on July 11 1950 •18 Lending arrangements since 1958, •Why?](https://reader034.vdocuments.us/reader034/viewer/2022042300/5ecb3b093f9b70002637ae49/html5/thumbnails/2.jpg)
Overview of the Presentation
• Introduction: What is the IMF? How are the IMF-Pakistan relations?
• What are Pakistan’s Macro-Critical Imbalances?
• What are the POLICIES and REFORMS envisaged under the IMF-Supported Program?
• GOALs, RISKs and MITIGATING FACTORS
• How the IMF-Supported Program will be Implemented and Reviewed?
![Page 3: IMF Extended Fund Facility Arrangement for Pakistan · IMF-Pakistan: A Historical Perspective •Pakistan Joined IMF on July 11 1950 •18 Lending arrangements since 1958, •Why?](https://reader034.vdocuments.us/reader034/viewer/2022042300/5ecb3b093f9b70002637ae49/html5/thumbnails/3.jpg)
IMF - An Overview
• What is the IMF? Some confusion in the public opinion,
even after 18 arrangements…
• How IMF serve to its country members?
• Policy Assessment and Advice (e.g. Article IV Consultations)
• Lending (Facilities to support governments’ programs)
• Capacity Building (e.g. Trainings and Technical Assistance]
• What are the main IMF Facilities?
• Concessional rates: Poverty Reduction and Growth Facility (PRGF), and the Extended Credit Facility (ECF);
• Market Based rates: such as the Stand-By Arrangements (SBA), Extended Fund Facility (EFF), among others
![Page 4: IMF Extended Fund Facility Arrangement for Pakistan · IMF-Pakistan: A Historical Perspective •Pakistan Joined IMF on July 11 1950 •18 Lending arrangements since 1958, •Why?](https://reader034.vdocuments.us/reader034/viewer/2022042300/5ecb3b093f9b70002637ae49/html5/thumbnails/4.jpg)
IMF-Pakistan: A Historical Perspective
• Pakistan Joined IMF on July 11 1950
• 18 Lending arrangements since 1958,
• Why? Pakistan’s recurrent BOP Crisis, either for external shock or internal factors
• Only the EFF 2013-2016 2013-16 was fully disbursed
• The stability gains achieved since late 2016 eroded. Pakistan again in a challenging situation
• Information about Pakistan and IMF at
• https://www.imf.org/en/Countries/PAK
![Page 5: IMF Extended Fund Facility Arrangement for Pakistan · IMF-Pakistan: A Historical Perspective •Pakistan Joined IMF on July 11 1950 •18 Lending arrangements since 1958, •Why?](https://reader034.vdocuments.us/reader034/viewer/2022042300/5ecb3b093f9b70002637ae49/html5/thumbnails/5.jpg)
What are Pakistan’s Main Macro-Critical Imbalances?
• Ballooning public deficits and losses in state owned companies, in a context of perennial low tax revenues and base.
• Increasing government borrowing—both domestic and international, a high and unsustainable debt level and interest payments (25 percent of the government revenue)
• Increase in trade deficit, reflecting high deficit, and keeping the exchange rate constant.
• Loose monetary policy, decline in SBP’s reserves to finance increasing imports, and despite extra funding
• Inflation increase, growth skewed toward consumption, competitive loss, low investment and job creation.
![Page 6: IMF Extended Fund Facility Arrangement for Pakistan · IMF-Pakistan: A Historical Perspective •Pakistan Joined IMF on July 11 1950 •18 Lending arrangements since 1958, •Why?](https://reader034.vdocuments.us/reader034/viewer/2022042300/5ecb3b093f9b70002637ae49/html5/thumbnails/6.jpg)
Pakistan Economy: Key Macro-Critical Imbalances
• High Fiscal Deficit and High Level of Debt
-10
-9
-8
-7
-6
-5
-4
-3
-2
-1
0
20
07
/08
20
08
/09
20
09
/10
20
10/1
1
20
11/1
2
20
12/1
3
20
13/1
4
20
14/1
5
20
15/1
6
20
16/1
7
20
17/1
8
20
18/1
9
20
19/2
0
High Fiscal Deficit (excluding grants)
% of GDP
0
10
20
30
40
50
60
70
80
90
2014/15 2015/16 2016/17 2017/18 2018/19 2019/20
Public Debt Profile (as a % of GDP)
External Debt Domestic Debt Total Debt
FRDLA
![Page 7: IMF Extended Fund Facility Arrangement for Pakistan · IMF-Pakistan: A Historical Perspective •Pakistan Joined IMF on July 11 1950 •18 Lending arrangements since 1958, •Why?](https://reader034.vdocuments.us/reader034/viewer/2022042300/5ecb3b093f9b70002637ae49/html5/thumbnails/7.jpg)
Pakistan Economy: Key Macro-Critical Imbalances
• Increasing losses of SOEs and power sector circular debt
0
1
2
3
4
5
6
PSEs Losses and Government Guarantees(Percent of GDP)
Outstanding Guarantees to PSEsof which energyPSEs Cumulative Lossesof which Energy
* Preliminary. Includes PIA, PSM, Railways, and DISCOS.
FY18*FY13 -100
0
100
200
300
400
500
600
700
800
2012-13 2013-14 2014-15 2015-16 2016-17 2017-18
Accumulation of power sector arrears
(In PRs billion)
Note: Includes new circular debt and new loans to the Power Holding Company Limited (PHCL).
EFF 2013-16 Ends here
![Page 8: IMF Extended Fund Facility Arrangement for Pakistan · IMF-Pakistan: A Historical Perspective •Pakistan Joined IMF on July 11 1950 •18 Lending arrangements since 1958, •Why?](https://reader034.vdocuments.us/reader034/viewer/2022042300/5ecb3b093f9b70002637ae49/html5/thumbnails/8.jpg)
Pakistan Economy: Key Macro-Critical Imbalances
• Low Tax Revenue and Comparative Macroeconomic Position
0
2
4
6
8
10
12
14
20
07
/08
20
08
/09
20
09
/10
20
10/1
1
20
11/1
2
20
12/1
3
20
13/1
4
20
14/1
5
20
15/1
6
20
16/1
7
20
17/1
8
20
18/1
9
Tax Revenue (as a % of GDP)
0 20 40 60 80
Gross
Public Debt
Social
Spending 1/
Tax Revenue
Reserves
Exports
FDI
Private
Investment
Real GDP
Growth (%)
EM average (2018)
Pakistan (2017/18)
Pakistan Relative to Emerging Market Economies (In percent of GDP, unless otherwise indicated)
Sources: IMF WEO Database, World Bank ASPIRE and WDI Database. 1/ Health, education and social safety net spending.
![Page 9: IMF Extended Fund Facility Arrangement for Pakistan · IMF-Pakistan: A Historical Perspective •Pakistan Joined IMF on July 11 1950 •18 Lending arrangements since 1958, •Why?](https://reader034.vdocuments.us/reader034/viewer/2022042300/5ecb3b093f9b70002637ae49/html5/thumbnails/9.jpg)
Pakistan Economy: Key Macro-Critical Imbalances
• An Overvalued Exchange Rate and Increasing Current Account Deficit
70
80
90
100
110
120
130
Oct-09 May-11 Dec-12 Jul-14 Feb-16 Sep-17 Apr-19
Real and Nominal Effective Exchange RateOctober 2009 – March 2019 (Indices, 2010 = 100)
REER NEER
External competitiveness remains weak, some recent improvements notwithstanding.
-9
-8
-7
-6
-5
-4
-3
-2
-1
0
20
07
/08
20
08
/09
20
09
/10
20
10/1
1
20
11/1
2
20
12/1
3
20
13/1
4
20
14/1
5
20
15/1
6
20
16/1
7
20
17/1
8
20
18/1
9
Continued External Pressures.....................
Current Account Balance (as a % of GDP)
![Page 10: IMF Extended Fund Facility Arrangement for Pakistan · IMF-Pakistan: A Historical Perspective •Pakistan Joined IMF on July 11 1950 •18 Lending arrangements since 1958, •Why?](https://reader034.vdocuments.us/reader034/viewer/2022042300/5ecb3b093f9b70002637ae49/html5/thumbnails/10.jpg)
Pakistan Economy: Key Macro-Critical Imbalances
• Rising External Financial Needs and Erosion in SBP Reserves
0
1
2
3
4
5
6
7
8
9
10
2011/12 2013/14 2015/16 2017/18 2019/20 2021/22
Non-interest current
account deficit
Debt and debt service
falling due
Gross external financing
need
Rising External Financing Needs... (Gross external financing needs, percent of GDP)
0
2000
4000
6000
8000
10000
12000
14000
16000
18000
20000
Apr-
12
Aug-
12
Dec-
12
Apr-
13
Aug-
13
Dec-
13
Apr-
14
Aug-
14
Dec-
14
Apr-
15
Aug-
15
Dec-
15
Apr-
16
Aug-
16
Dec-
16
Apr-
17
Aug-
17
Dec-
17
Apr-
18
Aug-
18
Dec-
18
Apr-
19
Erosion of FX Reserves (million U.S. dollars)
![Page 11: IMF Extended Fund Facility Arrangement for Pakistan · IMF-Pakistan: A Historical Perspective •Pakistan Joined IMF on July 11 1950 •18 Lending arrangements since 1958, •Why?](https://reader034.vdocuments.us/reader034/viewer/2022042300/5ecb3b093f9b70002637ae49/html5/thumbnails/11.jpg)
Pakistan Economy: Key Macro-Critical Imbalances
• Declining and consumption-focused growth, and increasing inflation
0
1
2
3
4
5
6
7
8
9
10
2007 2010 2013 2016 2019
Trend in Real GDP Growth (%)
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
18.0
Jul-
09
Jan
-10
Jul-
10
Jan
-11
Jul-
11
Jan
-12
Jul-
12
Jan
-13
Jul-
13
Jan
-14
Jul-
14
Jan
-15
Jul-
15
Jan
-16
Jul-
16
Jan
-17
Jul-
17
Jan
-18
Jul-
18
Jan
-19
Headline and Core Inflation
Headline Core (NFNE)
![Page 12: IMF Extended Fund Facility Arrangement for Pakistan · IMF-Pakistan: A Historical Perspective •Pakistan Joined IMF on July 11 1950 •18 Lending arrangements since 1958, •Why?](https://reader034.vdocuments.us/reader034/viewer/2022042300/5ecb3b093f9b70002637ae49/html5/thumbnails/12.jpg)
Pakistani Authorities’ Spade Work
• Some steps to stabilize the economy since early 2018: some exchange rate depreciation, monetary tightening (e.g. increase in the SBP policy rate), power and gas tariffs adjustments, and two minibudgets. In addition, the government secured sizable short-term financing from bilateral creditors.
• All these measures fell short of the comprehensive policy actions and reforms needed to ensure macroeconomic stability.
• The government has developed a comprehensive 3-year program to stabilize the economy and lay the foundation for robust and balanced growth.
![Page 13: IMF Extended Fund Facility Arrangement for Pakistan · IMF-Pakistan: A Historical Perspective •Pakistan Joined IMF on July 11 1950 •18 Lending arrangements since 1958, •Why?](https://reader034.vdocuments.us/reader034/viewer/2022042300/5ecb3b093f9b70002637ae49/html5/thumbnails/13.jpg)
What are the POLICIES envisaged under the IMF-supported Program?
• FIRST, a revenue-based fiscal consolidation, focused on removing exemptions and privileges, greater coordination with provinces, and an elimination of quasi-fiscal circular debt
• SECOND, a market-determined and flexible exchange rate, and a strengthened central bank focused on achieving price stability
• THIRD, the strengthening of social safety net, to protect the most vulnerable as needed, by expanding coverage and budget allocation of Benazir Income Support Program and Conditional Cash Transfer
![Page 14: IMF Extended Fund Facility Arrangement for Pakistan · IMF-Pakistan: A Historical Perspective •Pakistan Joined IMF on July 11 1950 •18 Lending arrangements since 1958, •Why?](https://reader034.vdocuments.us/reader034/viewer/2022042300/5ecb3b093f9b70002637ae49/html5/thumbnails/14.jpg)
What are the REFORMS aimed under the IMF-Supported Program?
• Improving public financial management to instill fiscal discipline and transparency (e.g. new PFM Law)
• More autonomy for the State Bank of Pakistan as it prioritizes price stability (e.g. no more government borrowing from SBP)
• Strengthening tax policy and administration
• Reforming the energy sector to ensure efficiency and better services
• Modernizing the SOE legal framework
• Strengthening anticorruption institutions; and progressing on FATF issues
• Removing bottlenecks and regulatory impediments to investment and job creation (e.g. speeding custom clearance, simplifying procedures to start a business, etc).
![Page 15: IMF Extended Fund Facility Arrangement for Pakistan · IMF-Pakistan: A Historical Perspective •Pakistan Joined IMF on July 11 1950 •18 Lending arrangements since 1958, •Why?](https://reader034.vdocuments.us/reader034/viewer/2022042300/5ecb3b093f9b70002637ae49/html5/thumbnails/15.jpg)
What are the GOALs that this program aims at achieving over the medium term?
• Debt sustainability
• Stronger tax collections and a better FBR
• Independent Central Bank
• Market-determined Exchange Rate regime
• Moderate inflation trajectory
• Sustainable and inclusive growth
• Power Sector Efficiency
• A new PFM regime/framework
• Better management of SOE
• Getting out of FATAF grey list
![Page 16: IMF Extended Fund Facility Arrangement for Pakistan · IMF-Pakistan: A Historical Perspective •Pakistan Joined IMF on July 11 1950 •18 Lending arrangements since 1958, •Why?](https://reader034.vdocuments.us/reader034/viewer/2022042300/5ecb3b093f9b70002637ae49/html5/thumbnails/16.jpg)
RISKS
• Fiscal slippages, resistance to fiscal measures, debt sustainability at risk
• Opposition to governance and institutional building by vested interests
• The absence of a majority by the ruling party in the upper house; provinces may underdeliver on their surplus commitments
• Large amount of rollover needs for short-term debt, and
• Failure to get out of grey-list by FATF could have implications of capital inflows to Pakistan, and jeopardizing the financing assurances under the program.
![Page 17: IMF Extended Fund Facility Arrangement for Pakistan · IMF-Pakistan: A Historical Perspective •Pakistan Joined IMF on July 11 1950 •18 Lending arrangements since 1958, •Why?](https://reader034.vdocuments.us/reader034/viewer/2022042300/5ecb3b093f9b70002637ae49/html5/thumbnails/17.jpg)
Supporting Factors
• Strong ownership by incumbent government and authorities and continuation of reforms
• Upfront adoption of key policy measures, especially on greater exchange rate flexibility
• Securing formal agreements with the provinces on the overall fiscal strategy, including procedures to address deviations
• Increasing social spending to protect the most vulnerable from the impact of reforms and garner support for these measures; and
• Strong commitments of support from the World Bank, ADB, and key bilateral partners and conservative assumptions on private financing flows.
![Page 18: IMF Extended Fund Facility Arrangement for Pakistan · IMF-Pakistan: A Historical Perspective •Pakistan Joined IMF on July 11 1950 •18 Lending arrangements since 1958, •Why?](https://reader034.vdocuments.us/reader034/viewer/2022042300/5ecb3b093f9b70002637ae49/html5/thumbnails/18.jpg)
How the IMF-Supported program will be implemented and reviewed?
• Quarterly Reviews; first one before end December; if successful, they will be followed by disbursements.
• Performance Criterion; numerical targets of key variables such as primary balance, level of reserves, etc.
• Indicative Targets; numerical targets that help monitor quality of the adjustment, such revenues collections, spending on health and education
• Structural Benchmarks; actions, such as preparing a piece of legislation
![Page 19: IMF Extended Fund Facility Arrangement for Pakistan · IMF-Pakistan: A Historical Perspective •Pakistan Joined IMF on July 11 1950 •18 Lending arrangements since 1958, •Why?](https://reader034.vdocuments.us/reader034/viewer/2022042300/5ecb3b093f9b70002637ae49/html5/thumbnails/19.jpg)
To Ask questions, visit www.sli.doEvent Code: #3708