The IMF executive board completed its seventh review of Pakistan's economic performance, approving the disbursement of $506.4 million. This brings total disbursements to $4.05 billion, or 66% of the total loan allocation. The board commended Pakistan's progress in improving external stability, reducing the current account deficit, and consolidating fiscal policy. However, continued reforms, especially in the energy sector, will be needed to sustain long-term growth above 6%.

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The executive board of IMF recently completed the seventh review of Pakistan’s
economic performance which will pave the way for disbursement of USD506.4mn,
bringing cumulative drawing to USD4.05bn, 66% of total loan allocation. The board has
commended consistent progress on economic front with notable improvement in
external account sustainability. This has been achieved primarily due to increasing
financial flows from multilateral agencies and reduced C/A deficit to USD2.0bn (0.8% of
GDP) in 11MFY15. Furthermore, fiscal position has also consolidated as country’s fiscal
deficit was contained at 5.0% for FY15 (provisional) against 8.5% seen in FY12. At the
same time, the government has envisaged to further reduce fiscal gap to 4.3% in FY16
Federal Budget. Swift improvement seen in economic indicators was not lost on
international rating agencies which have also have recently upgraded Pakistan’s long
term growth outlook to positive from stable. That said, timely realization of long term
growth potential (beyond 6%) will remain contingent om reform process remaining on
track, especially in fixing energy sector bottlenecks. From Market’s vantage, improving
macros (CPI, C/A deficit, GDP) and influx of FDI under CPEC will remain critical to
investors sentiment, in our view.
Disbursement of latest tranche to further strength external account position: The
executive board of IMF has successfully completed the seventh review of Pakistan’s
economic performance under 3yr Extended Fund Facility worth USD6.2bn. As a result,
Pakistan is likely to receive USD506.4mn, bringing cumulative draw down to USD4.05bn,
66% of total package. The board has reaffirmed its conviction on Pakistan’s persistently
improving macros with notable progress on external account stability, tamed inflation,
fiscal consolidation efforts and energy sector reforms. Prior to EFF agreement,
macroeconomic imbalances were at their peak with burgeoning twin deficits coupled with
record low SBP Fx reserves to USD3.9bn as of Feb’14.
Fiscal consolidation initiatives should remain stringent: Fiscal position has considerably
improved as deficit declined for a third consecutive year. Consequently, FY15 (provisional)
deficit is likely to clock around 5.0% down from 8.5% seen in FY12. At the same time,
government has envisaged to further reduce fiscal gap to 4.3% in FY16 federal budget. As
such, government plans to broaden the tax base including continuation of second lag of
elimination of tax exemptions and concessions coupled with bringing non‐tax filer into the
tax net. On the expenditure side, the government is implementing phase wise reduction in
costly and inefficient electricity subsidies. Furthermore, government has successfully
diversified budgetary financing by reducing the reliance on central bank financing, which
has not only improved public debt management but also provided room for private sector
credit expansion.
S&P/Moody’s eying a notable improvement in economic framework: After witnessing a
gradual improvement in economic performance, Standard & Poor’s has upped Pakistan
long term outlook to positive from stable together with increasing average GDP growth
target to 4.6% for FY15‐FY17 from 3.8%. At the same time, S&P expects average inflation
to hover around 4.8% from FY15‐FY19 while expecting twin deficits to remain at
manageable levels. Following the rating improvement by S&P, Moody’s has also upgraded
Pakistan’s foreign currency rating to B3 from Caa1 and assigned a Positive outlook. The
improvement in rating stems from i) continued improvement in external account position
and ii) sustained progress in structural reform process.
Pakistan Economy
Monday Jun 29, 2015
IMF Review; Improving macroeconomic indicators!
Source: SBP, BMA Research
Select Economic Indicators
CPI Inflation May‐15 YoY 3.2%
SPI Inflation May‐15 YoY 1.2%
NFNE Inflation May‐15 YoY 4.9%
Reserves 19‐Jun‐15 USD17.4bn
Remittances 11MFY15 USD16.6bn
Trade Balance 11MFY15 USD(15.5)bn
Current A/c deficit 11MFY15 USD(2.0)bn
6 Month KIBOR
(Offer Rate)
26‐Jun‐15 6.98%
10 Year PIB 26‐Jun‐15 9.95%
Discount Rate 7.0%
1
Date USDmn Conditions
September 2, 2015 506.4 Jun 2015 Review
December 2, 2015 506.4 Sep 2015 Review
March 2, 2016 506.4 Dec 2015 Review
June 2, 2016 506.4 Mar 2016 Review
August 1, 2016 102.7 Jun 2016 Review
FY15 FY16 FY17
GDP (%) 4.3 4.7 4.8
CPI (%) 6.0 5.3 5.0
C/A Balance (USDbn) ‐3.3 ‐3.3 ‐4.2
Fx Reserves (USDbn) 15.4 20.2 21.9
Ext. Debt (% of GDP) 24.6 25.3 24.9
Fiscal Def. (% of GDP) ‐4.6 ‐3.9 ‐3.5
Iqbal Dinani
Iqbal.dinani@bmacapital.com
+92 111 262 111 Ext: 2059
Schedule of Pakistan Reviews
IMF Projections
Source: IMF