TAHIR AMIN

ISLAMABAD: The Inter-national Monetary Fund (IMF) has said that there is still ample scope for increasing tax revenues; especially through tax administration reforms as fiscal consolidation is broadly on track, but the Pakistani authorities must be prepared to take further action to address possible revenue shortfalls.

This has been mentioned in an IMF statement issued on Thursday after completion of the Executive Board of the International Monetary Fund (IMF) fourth and fifth reviews of Pakistan’s economic performance under a three-year programme supported by an Extended Fund Facility (EFF).

The IMF further said macroeconomic conditions are improving, but significant risks to recovery remain. The measures taken by the authorities to address short-term macroeconomic vulnerabilities and implement structural reforms are bearing fruit, but continued efforts are needed to make the economic transformation more sustainable.

The Executive Board of IMF completed the fourth and fifth reviews of Pakistan’s economic performance under a three-year programme supported by an Extended Fund Facility (EFF). The conclusion of the review enables the release of an amount equivalent to SDR 720 million (about US$1.05 billion), bringing total disbursements under the arrangement to SDR 2.2 billion (about US$3.2 billion), said an IMF statement.

“Pakistan may receive two tranches worth of $1.1 billion by today (Friday),” senior officials revealed to Business Recorder.

The government would achieve its target of enhancing foreign exchange reserves to $15 billion after receiving two tranches worth of $1.1 billion. Pakistan would now be eligible for loans from the International Bank for Reconstruction and Development (IBRD) that would enable it to undertake major projects after enhancing its reserves to $15 billion level, they added.

According to the Fund, in completing the fourth and fifth reviews, the Executive Board also approved the authorities’ request for waivers of non-observance of performance criteria on the basis of corrective measures taken, including prior actions on net domestic assets and on government borrowing from the State Bank of Pakistan.

The Executive Board approved on September 4, 2013 the EFF for Pakistan in the amount of SDR 4.393 billion (about US$6.44 billion, or 425 percent of Pakistan’s quota at the IMF).

Following the Executive Board’s discussion on Pakistan, David Lipton, First Deputy Managing Director and Acting Chair, issued the following statement:

“Macroeconomic conditions are improving, but significant risks to the recovery remain. The measures taken by the authorities to address short-term macroeconomic vulnerabilities and implement structural reforms are bearing fruit, but continued efforts are needed to make the economic transformation more sustainable.

“Fiscal consolidation is broadly on track, but the authorities must be prepared to take further action to address possible revenue shortfalls. There is still ample scope for increasing tax revenues, especially through tax administration reforms. The government has reduced its reliance on central bank financing, but a robust organizational framework for public debt management needs to be implemented.

“Efforts to boost international reserves should continue, including through spot purchases and allowing greater exchange rate flexibility. Monetary policy remains prudent, focused on meeting programme’s monetary targets and achieving a sustained reduction in inflation. Legislation to enhance central bank independence is crucial and should conform to best international practices. It should be complemented by an enhanced communication of the central bank price stability objective, improved functioning of the interest rate corridor, and effective open market operations.

“The financial sector remains stable and profitable. Ongoing financial sector reforms and remedial actions in the few banks that don’t reach minimum capital requirements will ensure the system’s continued health.

“Structural reforms are progressing. Addressing the administrative constraints on the power sector’s regulatory framework, improving the operations and collections of energy companies, and electricity tariff reform should continue. The implementation of gas price rationalization should move forward with the gas levy and more favorable producer prices to better allocate the current supply and encourage new production. Commitment to privatization of public sector enterprises is strong, but potential difficulties are related to market conditions. Trade policy and business climate reforms are progressing.

“Finally, the Executive Board, management and staff of the Fund express their deepest condolences to the people of Pakistan for the loss of innocent lives in the recent horrific attack on a school in Peshawar.”