AsiaNet-Pakistan Premier Editorial Content and Press Release Distribution Service
Karachi, March 30, 2015 (PPI-OT): The IMF approved the release of US$501mn under the EFF agreement at the conclusion of its Board’s meeting of the sixth review while commending GoP for its progress on the program as well as brining economic stability. Pakistan comfortably met all quantitative and structural benchmarks for the review, assessing performance for the period Oct-Dec’14.
While AKD Securities Limited awaits the release of the memorandum of economic and financial policies (MEFP) and staff report, earlier speculations had suggested that fiscal deficit targets for the remainder of FY15 may be revised owing to low price levels that can stress revenue collection.
AKD Securities Limited also expects the addition of more structural reforms for the remainder of the program, where the focus is expected to remain on (i) strengthening the functioning and autonomy of SBP and (ii) ensuring fiscal consolidation through reduction of subsidies and gas sector price rationalization. Performance criteria for the next fiscal year likely to be added to the report may give an indication for the upcoming FY16 budget (tentative date: 29 May’15).
Another instalment: The IMF approved the release of US$501mn under the EFF agreement at the conclusion of its Board’s meeting of the sixth review assessing Pakistan’s performance against targets for the period Oct-Dec’14. The release of the tranche will allow fx reserves to reach US$16.6bn, which stood at US$16.13bn for the week ended 20 Mar’15.The approval of the seventh instalment of disbursements under the agreement, the total of which now stands at US$3.5bn, was expected as the govt. had smoothly met all quantitative targets, a first in the program so far.
Successful PIB auctions allowed GoP to limit NDA and borrowing from SBP, while Sukuk issuance in Dec’14 helped to meet the int’l reserve requirement. Structural benchmark relating to submission of amendments in the Anti-Money Laundering Act to the parliament, the only one for Dec-end, was also met. The Board commended GoP’s progress on the program, specifically pertaining to implementation of reforms while pointing out need for further efforts in the fiscal and monetary sector.
Will deficit be a hurdle? So far, Pakistan has managed to keep its budget deficit below the set targets in all reviews (1HFY15 budget deficit at 2.2% of GDP). However, looking at provisional figures (collection till Feb’15 at PkR1.5trn) FPR has an uphill task to collect PkR1.1trn in the remaining 4months where any shortfall in revenue collection can potentially be a hurdle in limiting budget deficit to the target.
The memorandum of economic and financial policies (MEFP) and staff report, due to be released soon, will lay out any changes in future targets, but earlier speculations had suggested that deficit and revenue targets may be revised for the remainder of FY15. Meanwhile, GoP continues to rely on imposition of regulatory duty on various items (ranging from import of steel, iron to luxury items) to narrow the fiscal gap.
Expectations- While AKD Securities Limited awaits the MEFP and staff report, AKD Securities Limited expects the addition of more structural reforms for the remainder of the program, similar to earlier reviews. Pakistan has already completed 18 of the earlier prescribed 21 reforms and is also on track to meeting the 5 reforms added in the last review.
Yet the statement issued by the Fund highlighted the importance of the continuing the reform agenda where the focus is expected to remain on policies and legislation aiming to (i) strengthen the functioning and autonomy of SBP and (ii) ensure fiscal consolidation through reduction of subsidies and gas sector price rationalization along with enhancing the tax base. The report is also expected to have performance criteria for the next fiscal year, which together with additional reforms may give an indication for the upcoming FY16 budget (tentative date: 29 May’15).