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ISLAMABAD: International Monetary Fund (IMF) said on Wednesday that Pakistan has succeeded in stabilizing its economy, but steady implementation of reforms would be vital if the country hoped to find a place among the world's fast-growing emerging markets.
A latest statement cum interview of Jeffrey Franks, the IMF's outgoing mission chief for Pakistan said that the balance of payments crisis averted, growth rebounding Energy subsidy, tax reforms yielding results Country must stay the course with reforms for sustained growth to take hold Pakistan has succeeded in stabilizing its economy, but steady implementation of reforms will be vital if the country hopes to find a place among the world's fast-growing emerging markets.
The IMF's Executive Board approved the latest disbursement under a 36-month IMF-supported loan on March 27 based on the solid progress made to date on Pakistan's economic reform agenda.
In the following interview, Jeffrey Franks, the IMF's outgoing mission chief for Pakistan, discussed the country's achievements at the program's halfway mark and the considerable work that remains for the country to achieve a true economic transformation.
Franks is leaving the Pakistan assignment to become Director of the IMF's Offices in Europe.
Harald Finger of the IMF's Middle East and Central Asia Department has been appointed as his replacement.
Mr. Franks while updating on Pakistan's economy said that Pakistan has made good progress.
He added that when the country approached the IMF for support in 2013, it was on the verge of a balance-of-payments crisis, and that crisis has been averted.
Franks said that reserves at the State Bank of Pakistan, which had declined to perilously low levels, are now rebounding.
The fiscal deficit, which, he said was extremely large at over 8 percent of GDP in 2012-13, is on track this year to get down below 5 percent of GDP.
"Not only is the deficit lower, but financing conditions have eased considerably. Pakistan has regained access to international capital markets, and the country has received disbursements from the IMF and other development partners", he remarked.
He further said that the economy grew about 4 percent last year, and we're expecting a similar figure this year adding that's a good performance considering the country was carrying out major fiscal consolidation.
"But it's not enough to substantially improve income levels because of the high population growth rate", he observed.
In terms of Pakistan achievement of structural reforms,Franks said that among the key achievements was tackling costly and inefficient electricity subsidies.
He added that those subsidies have come down from almost 2 percent of GDP to 0.7 percent of GDP this year, and they are expected to fall to 0.3 next year.
This reduction in subsidies, he said was accompanied by measures to protect the poor.
At the same time, the government has been working to increase the energy supply to tackle the country's huge electricity outages and improve the operations of the generation and distribution companies to make them more efficient, he added.
Franks further said that the government has also made progress on improving the tax system.
Pakistan, he said has these so-called Statutory Regulatory Orders, or SROs, which grant tax exemptions and concessions, riddling the tax system with loopholes.
He said that at the beginning of this fiscal year, the government eliminated a significant number of those SROs, and it is expected to improve tax collection from that source by about 0.3 percent of GDP this year.
Another batch of SROs will be eliminated in the upcoming budget for a similar amount, he added.
This and other tax base-broadening measures, he said have yielded good results.
The government, he said has also made some headway in administering taxes- catching the people who are evading taxes, making sure that they pay, and collecting taxes in a more efficient manner, but much more is needed.
Franks said that the authorities have also improved the trade regime and taken some initial steps on improving the business climate and on the privatization of public enterprises.
"But in all these areas, there's more work to do", he said.
When asked about Pakistan's tax-to-GDP ratio was among the lowest in the world and what other fiscal reforms are needed.
Franks said that more can be done to increase revenue collection at the provincial level.
When asked , what was the government doing to protect the poor as the economy stabilizes,Franks said that there have been two major initiatives under the programme.
The first, he said was to exempted the lowest consumers of electricity-those using 50 kilowatt hours per month and below-from the electricity price increases.
The second, he said was a significant increase in direct cash transfers under what's called the Benazir Income Support Programme.
This programme , he said provides direct cash transfers to women in about 5 million poor families.
The monthly benefit size in that programme has increased by over 25 percent over the last two years, and the number of beneficiary families is set to increase by over a million.
In addition, he said the World Bank and others are implementing the second phase of the Income Support Programme, which provides an "educational allowance" cash transfer to families who keep their kids in school.
Replying to another question, how can the country maximize the benefits of the recent decline in oil prices,Franks said that Pakistan was a net importer of oil, "so the decline in oil prices is a positive shock".
"We anticipate that this development will save the country several billion dollars a year in oil imports, helping ease the balance of payments problems and allowing the central bank to accumulate reserves more quickly. It should also have a positive effect on businesses' ability to invest and on growth".
He added that there was some risk that the substantial income that Pakistan was receiving through remittances from workers in the Gulf may be affected. For right now, though, those remittances were continuing to grow, and we don't expect any short-term negative effect on worker remittances.
"We have advised the authorities to take advantage of this positive shock to move more quickly to fix the major imbalances in the energy sector. They are now in a better position to continue, or even accelerate, the reduction of subsidies without increasing consumer prices since world oil prices are going down", he remarked.
About Pakistan's main economic challenges right now,Franks said that in the past, when the immediate risk of a crisis receded, previous programs often went off track.
"A key challenge for Pakistan is to continue the policies that it has begun and push the reforms through. Second, Pakistan confronts a major challenge with its security situation, so the authorities have to figure out how to maintain good economic stability and growth in this difficult context. Third, the lack of energy in Pakistan remains a serious constraint on growth"he remarked.
More broadly, he said in three years, it's not possible to deal with all the challenges that Pakistan's economy faces.
"There are legitimate concerns about the need to boost education in Pakistan to improve the long-term growth prospects, and we support efforts by the World Bank and others in this regard. The need for fiscal consolidation has meant that infrastructure investment isn't as high as we would like. And though the authorities have made progress, there is still much scope for improvement of tax administration", he remarked.
Franks said that Pakistan has tremendous economic potential.
"My fondest hope would be to see reforms in place that allow the country to join those fast-growing emerging market economies that have pulled so many people out of poverty", he remarked.
"If Pakistan could have a 7 percent growth rate like India or China and sustain that over a decade or more, there would be an enormous transformation", he observed.
Copyright APP (Associated Press of Pakistan), 2015
Pakistan has succeeded in stabilizing its economy: IMF
A latest statement cum interview of Jeffrey Franks, the IMF's outgoing mission chief for Pakistan said that the balance of payments crisis averted, growth rebounding Energy subsidy, tax reforms yielding results Country must stay the course with reforms for sustained growth to take hold Pakistan has succeeded in stabilizing its economy, but steady implementation of reforms will be vital if the country hopes to find a place among the world's fast-growing emerging markets.
The IMF's Executive Board approved the latest disbursement under a 36-month IMF-supported loan on March 27 based on the solid progress made to date on Pakistan's economic reform agenda.
In the following interview, Jeffrey Franks, the IMF's outgoing mission chief for Pakistan, discussed the country's achievements at the program's halfway mark and the considerable work that remains for the country to achieve a true economic transformation.
Franks is leaving the Pakistan assignment to become Director of the IMF's Offices in Europe.
Harald Finger of the IMF's Middle East and Central Asia Department has been appointed as his replacement.
Mr. Franks while updating on Pakistan's economy said that Pakistan has made good progress.
He added that when the country approached the IMF for support in 2013, it was on the verge of a balance-of-payments crisis, and that crisis has been averted.
Franks said that reserves at the State Bank of Pakistan, which had declined to perilously low levels, are now rebounding.
The fiscal deficit, which, he said was extremely large at over 8 percent of GDP in 2012-13, is on track this year to get down below 5 percent of GDP.
"Not only is the deficit lower, but financing conditions have eased considerably. Pakistan has regained access to international capital markets, and the country has received disbursements from the IMF and other development partners", he remarked.
He further said that the economy grew about 4 percent last year, and we're expecting a similar figure this year adding that's a good performance considering the country was carrying out major fiscal consolidation.
"But it's not enough to substantially improve income levels because of the high population growth rate", he observed.
In terms of Pakistan achievement of structural reforms,Franks said that among the key achievements was tackling costly and inefficient electricity subsidies.
He added that those subsidies have come down from almost 2 percent of GDP to 0.7 percent of GDP this year, and they are expected to fall to 0.3 next year.
This reduction in subsidies, he said was accompanied by measures to protect the poor.
At the same time, the government has been working to increase the energy supply to tackle the country's huge electricity outages and improve the operations of the generation and distribution companies to make them more efficient, he added.
Franks further said that the government has also made progress on improving the tax system.
Pakistan, he said has these so-called Statutory Regulatory Orders, or SROs, which grant tax exemptions and concessions, riddling the tax system with loopholes.
He said that at the beginning of this fiscal year, the government eliminated a significant number of those SROs, and it is expected to improve tax collection from that source by about 0.3 percent of GDP this year.
Another batch of SROs will be eliminated in the upcoming budget for a similar amount, he added.
This and other tax base-broadening measures, he said have yielded good results.
The government, he said has also made some headway in administering taxes- catching the people who are evading taxes, making sure that they pay, and collecting taxes in a more efficient manner, but much more is needed.
Franks said that the authorities have also improved the trade regime and taken some initial steps on improving the business climate and on the privatization of public enterprises.
"But in all these areas, there's more work to do", he said.
When asked about Pakistan's tax-to-GDP ratio was among the lowest in the world and what other fiscal reforms are needed.
Franks said that more can be done to increase revenue collection at the provincial level.
When asked , what was the government doing to protect the poor as the economy stabilizes,Franks said that there have been two major initiatives under the programme.
The first, he said was to exempted the lowest consumers of electricity-those using 50 kilowatt hours per month and below-from the electricity price increases.
The second, he said was a significant increase in direct cash transfers under what's called the Benazir Income Support Programme.
This programme , he said provides direct cash transfers to women in about 5 million poor families.
The monthly benefit size in that programme has increased by over 25 percent over the last two years, and the number of beneficiary families is set to increase by over a million.
In addition, he said the World Bank and others are implementing the second phase of the Income Support Programme, which provides an "educational allowance" cash transfer to families who keep their kids in school.
Replying to another question, how can the country maximize the benefits of the recent decline in oil prices,Franks said that Pakistan was a net importer of oil, "so the decline in oil prices is a positive shock".
"We anticipate that this development will save the country several billion dollars a year in oil imports, helping ease the balance of payments problems and allowing the central bank to accumulate reserves more quickly. It should also have a positive effect on businesses' ability to invest and on growth".
He added that there was some risk that the substantial income that Pakistan was receiving through remittances from workers in the Gulf may be affected. For right now, though, those remittances were continuing to grow, and we don't expect any short-term negative effect on worker remittances.
"We have advised the authorities to take advantage of this positive shock to move more quickly to fix the major imbalances in the energy sector. They are now in a better position to continue, or even accelerate, the reduction of subsidies without increasing consumer prices since world oil prices are going down", he remarked.
About Pakistan's main economic challenges right now,Franks said that in the past, when the immediate risk of a crisis receded, previous programs often went off track.
"A key challenge for Pakistan is to continue the policies that it has begun and push the reforms through. Second, Pakistan confronts a major challenge with its security situation, so the authorities have to figure out how to maintain good economic stability and growth in this difficult context. Third, the lack of energy in Pakistan remains a serious constraint on growth"he remarked.
More broadly, he said in three years, it's not possible to deal with all the challenges that Pakistan's economy faces.
"There are legitimate concerns about the need to boost education in Pakistan to improve the long-term growth prospects, and we support efforts by the World Bank and others in this regard. The need for fiscal consolidation has meant that infrastructure investment isn't as high as we would like. And though the authorities have made progress, there is still much scope for improvement of tax administration", he remarked.
Franks said that Pakistan has tremendous economic potential.
"My fondest hope would be to see reforms in place that allow the country to join those fast-growing emerging market economies that have pulled so many people out of poverty", he remarked.
"If Pakistan could have a 7 percent growth rate like India or China and sustain that over a decade or more, there would be an enormous transformation", he observed.
Copyright APP (Associated Press of Pakistan), 2015
Pakistan has succeeded in stabilizing its economy: IMF
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