Key Points Of The IMF 112 Pages Country Report About Pakistan. By Farukh Abbasi

Key Points Of The IMF 112 Pages Country Report About Pakistan. By Farukh Abbasi

IMF’s 112 page Pakistan country report was just released. It clarifies a lot of things that are being discussed about our economic affairs these days. 

This THREAD will highlight key points.

• IMF revived the program and extended the facility after the current govt showed some progress on 7 key steps that were promised by Shaukat Tareen. These included taxes and levies on fuel, increasing tariffs on electricity and gas and also increasing taxes on salaries class.

• Imran Khan’s four month relief package led to a missed end-June fiscal target by a lot.  It also widened the fiscal deficit by more than 1.5% of the total GDP.

• After some initial delay, the new government started to unwind the relief package in late-May 2022 removing the untargeted power and post-tax fuel subsidies, commencing the restoration of the Petroleum Development Levy (PDL, ¶14), while expanding social support schemes.

• Additionally, it adopted the FY23 budget, which entails a sizable primary balance adjustment, while the SBP has tightened monetary policy considerably to address inflationary pressures.

• IMF also made an interesting point that SBP was also slow in its response during the last year of SBP head Raza Baqir. This was the reason why GDP Growth was pushed to 6% and also led to higher inflation.

• Trade deficit was widened by 40.5 Billion USD and only partially recovered via 2.5 Billion/month of remittances. This was due to the fact that PTI gave the cheapest fuel in the world despite high tee prices and oil imports grew alot.

• Gross reserves declined from US$17.6 billion at end-December 2021 to US$9.8 billion at end-June 2022, equivalent to about 1.5 months of imports coverage and SBP had to hike the policy rate and devalue the currency by 30%.

• Risk premia have increased considerably, and the EMBIG spreads are close to 2,000 bps since mid-July. During FY22, Pakistan’s economy has experienced little impact from COVID-19 waves, including the most recent Omicron wave in January–February 2022.

• PTI govt’s bad economic policies forced IMF to enforce a zero net SBP credit to govt policy. This means SBP will not lend money to the govt. Shaukat Tarin’s finance ministry missed two main performance criteria due to fiscal slippages.

• The authorities missed three continuous PCs on the:

(i) non-imposition and non-intensification of exchange restrictions, (ii) non-modification of multiple currency practices (MCPs); and

•  (iii) non-imposition of import restrictions for BOP purposes after extending cash margin requirements for imports, banning imports of luxury and nonessential items, and requiring import payment authorization for certain goods.

• The indicative targets that were missed by PTI in March 2022 were met by Dr Miftah Ismail finance ministry.

• The authorities met one Structural benchmark (SB) and implemented two with delay, against the ten SBs due through end-June 2022. Specifically, parliament adopted the OGRA Act Amendments for the gas sector in March (end-June 2022 SB).

• In addition, with delay, the Public Procurement Regulatory Authority (PPRA) issued in May regulations for publication of beneficial ownership information in large procurement contracts (end-March 2022 SB),

• and measures were adopted in June to strengthen the effectiveness of the AML/CFT framework (end-March 2022 SB).

• At the same time, Imran Khan’s govt missed seven SBs, as they granted further tax amnesties (continuous SB) and new preferential tax treatments (continuous SB), most of which lapsed in line with their embedded sunset clauses by the time of the FY23 finance bill.

• Their draft PIT law also deviated from the commitment during the sixth EFF review (end-February 2022 SB). Finally, despite significant progress in the face of capacity constraints, four SBs remain outstanding and, thus, will be reset (i.e., the parliamentary approval of the

• new state-owned enterprise (SOE) law, a plan for the phasing out of SBP refinance facilities, first-stage recapitalization of two private sector banks, and establishment of an asset declaration system).