Pakistan Should Persist with Reforms, IMF Says

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

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, discusses 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.

IMF Survey: Can you provide an update on Pakistan’s economy?

Franks: Pakistan has made good progress. 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. Reserves at the State Bank of Pakistan, which had declined to perilously low levels, are now rebounding.

The fiscal deficit, which 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.

The economy grew about 4 percent last year, and we’re expecting a similar figure this year. 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.

IMF Survey: What has Pakistan achieved in terms of structural reforms?

Franks: Among the key achievements is tackling costly and inefficient electricity subsidies. 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 is 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.

The government has also made...