IMF’s report released after the completion of the 7th review has lauded performance of incumbent government of Pakistan on the ongoing EFF program. The authorities have managed to meet all criteria by considerable margins, without relaxations, the second time during the currency of program. The fund has largely maintained a positive tone for the country’s progress to date as well as future outlook. Inflation forecast for FY16 has been reduced to 4.7%YoY from 5.3%YoY. GDP growth has been projected at 4.5% for FY16 compared to 4.7% earlier.
Despite this stellar performance, the lender of last resort has highlighted the need for introducing more stringent reform, where legal challenges will continue to be a risk. A comprehensive Arrears Reduction plan has been proposed to address the problem of circular debt with key measures including: 1) revenue-based load management to improve collection, 2) determination of multi-year tariff determination, and 3) reduction of payables with a new indicative target placing a ceiling on power sector arrears. Slow progress on privatization plan has also been noted where deadlines for privatization of PARCO, KAPCO and other power DISCOs have been outlined. Revenue measures to enhance tax collection have also been outlined where nearly 1% of GDP is set to be generated in taxes (including GIDC) for FY16, which encompasses withdrawal of 0.3% of GDP worth tax exemptions.
In this regard, the GoP: 1) overshot the net international reserve (NIR) target by more than US$700 million, 2) remained comfortably below the ceiling on targets for Net Domestic Assets (NDA) and borrowing from SBP owing to government paper issuances, 3) met the budget deficit target with a margin of Rs34 billion, and 4) completed all required structural benchmarks for the period. However, tax collection remained a bottleneck, where similar to the last review the GoP missed the indicative target for revenue collection by Rs69 billion, an issue that is likely to persist in the next few periods.
Experts expect smooth traction in the next staff review meeting expected next month, where GoP’s performance for the June’15 end quarter will be evaluated. Reserve requirements are likely to be met comfortably, as the SBP’s liquid foreign exchange reserves touched US$13 billion in the outgoing year. Recently released auction schedule reflect GoP’s borrowing target through the next quarter at Rs1.35 trillion, which should keep NDA and borrowing from SBP under limits. Even though FBR has missed the revenue collection target analysts do not see this as a major point of concern and expect budget deficit to remain within the target, owing to expenditure cuts.