The International Monetary Fund (IMF) has completed a review of performance of Pakistan’s economy. This has paved way for release of another tranche of US$500 million subject to the approval by the Fund’s Board.
It is encouraging to note that the Government of Pakistan (GoP) has managed to meet all five covenants for the period ended 31st December 2015 as recent foreign inflows amounting to US$2.4 billion helped in achieving US$9.3 billion NIR target, while retirement of budgetary borrowing from SBP kept NDA below its prescribed ceiling of Rs2.58 trillion.
Revenue collection was slightly below the required target reflecting impact of recently imposed duties. This helped the GoP to achieve targets for limiting budget deficit to Rs625 billion, which remained a major concern in the last review.
However, GoP was unable to meet structural benchmarks relating to PIA’s privatization, where news flows indicate further delay. While clarity in this regard should emerge from the review report (likely to be released next month), low probability of privatization being completed this year does not bode well and likely to constrain fiscal space further, as Rs50 billion have been budgeted in FY16 under privatization proceeds.
IMF has maintained its positive tone on the country’s economic outlook with optimism driven from investments under CPEC, higher construction activity and lower oil prices. However, weak agricultural output this year with low cotton production (down 33%) is a key risk where the Fund has reiterated its GDP growth projection at 4.5%. Inflation level is projected at 3.7% for FY16.
The news flows indicate a possible delay in privatizations of both PIA and power entities by GoP but the Fund has remained silent on the future course for privatizations – contrary to the last review where the IMF emphasized on it. The clarity on Fund’s stance on privatization is likely to emerge from the review report to be released late next month.
There is strong perception that Pakistan will get the money irrespective of meeting or not meeting the agreed targets due to the support of its western allies, and neighbors Afghanistan and India. Analysts openly express fears that an economic meltdown could further destabilize the atomic power having a population of over 200 million, suffering from looking power shortages, wide spread corruption and ever growing militancy.