EVALUATION OF THE IMF
PROGRAM
BY
Dr. Hafiz A. Pasha*
*former Finance Minister; Deputy Chairman, Planning Commission and Vice Chancellor
University of Karachi
The Economic Situation
2012-13
• Growth rate remains low at about 3.5%
• Rate of Inflation down to 7.4%
• Large Fiscal Deficit of over Rs 1830 billion, 8 % of GDP
• Balance of Payments Deficit of $2.3 billion,
with current Account Deficit:-
$2.3 billion
Capital/Financial Account Surplus: - % 0.0 billion
• Plus Repayment to IMF of $ 2.5 billion
• Decline in Foreign Exchange Reserves of $ 4.8 billion, from $
10.8 billion at the end of 2011-12 to $ 6 billion at end of 201213
The Economic Situation
2013-14
• Peak Repayments to IMF in 2013-14 of $ 3.2 billion
• With ‘Business as Usual’ Scenario ,danger of default by
Pakistan, unless drastic steps taken
• Recourse to IMF, Global Lender of Last Resort and Policy of
Government of NEW LOAN TO REPAY OLD LOAN
Key Features of IMF Program
• Three Year Under Extended Fund Facility (EFF), with focus
on structural reforms
• Access to 425 % of Quota; Amount $6.6 billion
• 5 ‘Tough’ Prior Actions
• Initial Release of $ 544 million, 12 quarterly installments
following successful ‘review’ each time
• 5 Performance Criteria; 11 Structural Benchmarks; 9 to be
completed by June 2014
Objectives Of the Program
‘Stabilize First; Revive Later’
2013-14
MACROECONOMIC STABILIZATION
Balance of Payments
• Improve Balance of Payments from Deficit of $2.3 billion to
surplus of $ 4.6 billion
• Raise FE reserves from $6 billion to $ 9.6 billion by end of 201314
BUDGET
• Reduce fiscal deficit to 5.8 % of the GDP from 8% of GDP
Policy Instruments
Balance of Payments
• Depreciate the Rupee by 14 %
• Interest Rates to rise with Rate of Inflation
• Higher inflow of Aid from World Bank, ADB, etc., due to Program
Budget
• Taxation Proposals in Budget of over Rs 200 billion (GST, direct
taxes etc)
• Reduce Subsidy by substantial Jump in Power Tariff
• Higher taxation of Gas
• Cut Development Expenditure by 25 %
Current Position
At the End of First Quarter of 2013-14
 Projected FE Reserves by IMF at end - September of $ 5.6 billion; Actual
Reserves of $ 4.6 billion.
THEREFORE, PROGRAM IS ALREADY OFF-TRACK
 Projected depreciation of Rupee in the Program of 14 percent in 201314; Already 7 percent in the first three months
 Shortfall in CSF inflow of $ 300 million
 Budgetary Position is better at 1.6 percent of the GDP in first quarter of
2013-14; but almost Rs. 500 billion printing by the Central Bank (SBP)
 FBR revenue growth of 17-18 per cent; as compared to target growth
rate of 23 per cent
 ‘Core` Inflation rate close to 9 percent in September; compared to annual
projection of below 8 percent in the program
Current Position
• In November, large repayment to IMF of over $700 million; FE
reserves could fall to below $3.5 billion, not enough for even one
month’s import cover. Therefore, rupee could come under severe
pressure.
Projected Level of Foreign Exchange Reserves
10
IMF
9.6
9
8
7.2
7
FE Reserves
($ billion)
6
5.6
5
‘Worst Case ’Scenario
5.3
4.9
4.6
4.2
4
3.5
One Month’s
Import Cover
3
2
1
1st Qr
2nd Qr
3rd Qr
4th Qr
Contingency Planning
• Implement Policy of Import Compression by
I. early withdrawal of SROs
II. regulatory duties on non-essential imports
III. raise import margin requirements
IV. other punitive measures
 Seek more front loading of releases from IMF
 Further cut in development expenditure, except for projects in power
and water sectors
 Implement further cuts in non-salary expenditure
 Tight Limit to overdraft of Provincial Governments
Projection of Key Macro Economic
Variables in 2013-14
IMF
GDP Growth Rate
2.5
Red
Rate of Inflation
2.5
11
8
Fiscal Deficit (% of GDP)
7
Current Account Deficit
(% of GDP)
1.7
5.8
0.6
The Future
• Pakistan is poised on the `Knife edge` in 2013-14, even in the
presence of an IMF program
• Danger of rising inflation and loss of growth
• Improvement in the economic situation will also hinge on
o The Security Situation
o Level of Power Load shedding
• If Pakistan manages to build up reserves of $7 billion or so ( 1 ½
month’s import cover) by June 2014 then conditions will improve in
2014-15 and beyond as net receipts will take place from IMF
• Pakistan can then start a program of economic revival and try to
achieve 6 per cent growth rate by 2016-17.
Thank You