IMF completes fourth review of PRGF: fiscal deficit remains much below at Rs 44 billion

ISLAMABAD (November 21 2002) : The International Monetary Fund has completed fourth review of the Poverty Reduction and Growth Facility (PRGF) where the fiscal deficit remained much below at Rs 44 billion against the target of Rs 64 billion for end-September 2002. However, it says that undue burden of public enterprises on the budget is eating up public money.

The CBR collection was expected at Rs 90 billion, which crossed it at Rs 90.4 billion. The short-term debts remained at $194 million against the target $500 million. Non-concessional debts target was $600 million and only $88 million was borrowed. No arrears on external payments were remaining.

The government would only request one waiver of exempting customs duty and GST on CNG-kits. Net foreign assets (higher) and net domestic assets (lower) were positively better against the targets.

Finance Minister Shaukat Aziz commenting on the completion of the review after his meeting with the review mission said, “We are pleased that third review for September 30 is completed and most targets have been positively exceeded and we have no waiver except CNG-kit exemption which is done in public interest.”

An IMF press release, another central theme of the discussion was the need to stamp the drain on the budget by public enterprises in order to safeguard public outlays for essential infrastructure and poverty alleviation while achieving the planned reduction in the public debt burden.

Compliance by the Water and Power Development Authority (Wapda) and Karachi Electric Supply Corporation (KESC) with their respective financial improvement plans (FIPs) will require greater efforts at improved governance and operational efficiency/timely payment of bills by the private and the public sectors and passed through of the fuel cost. The planned publication and reporting on the first quarter outcomes under the FIPs by end-November should contribute to and inform public debate of the challenges and constraints facing the two companies.

The finance minister has repeatedly said that the government is expecting PRGF to be the last IMF programme with Pakistan and after that country will be free form tough fund conditionalities.

An IMF staff led by clause enders Division Chief in the Middle Eastern Department, on Wednesday concluded two weeks of discussions with the authorities which were held as part of the fourth review of Pakistan economic progress that is supported under IMF Poverty Reduction and Growth Facility (PRGF) the staff team reached understanding on the economic challenges ahead and the policy steps that are required to keep the programme on course. IMF staff look forward to continuing the economic policy dialogue with the Pakistan authorities with a view to completing the steps required for the next executive board meeting which could take place in early 2003, completion by the executive board of the fourth PRGF review will release a fifth disbursement of about $114 million to Pakistan under the PRGF.

The Mission team commended the authority for continued implementation of their comprehensive economic reform strategy, which has brought significant microeconomic achievement. The rate of inflation remained under 4 percent, official foreign reserve reached a record $6.6 million and the Pakistani rupee has appreciated against the US dollar. Economic growth of 4.5 percent this year appears attainable and the Central Board of Revenue receipts remains on target.

Against this background, the SBP was able to lower the discount rate. Structure reforms have continued including a banking sector and tax administration. IMF team believes that a main challenge ahead is to continue governance reforms and thus create the institutional environment that will give domestic and foreign investors the confidence needed to generate more jobs and higher growth. The team also stressed the need for further improvement in the delivery of social services including through strengthening system monitor the performance of schools, health units and other social services providers.

The IMF improved a three-year arrangement for Pakistan under the PRGP totalling SDR 1.034 billion (about US $1.33 billion) on December 7, 2001. Pakistan received the fourth disbursement on November 18, 2002 bringing the total amount drawn under the PRGF to SDR 344 million (about US $ 454 million).

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