Pakistan : Seventh Review Under the Extended Arrangement and Modification of Performance Criteria

EXECUTIVE SUMMARY Extended Arrangement under the Extended Fund Facility (EFF): A 36 month, SDR 4,393 million (425 percent of quota) Extended Arrangement under the EFF was approved by the Executive Board on September 4, 2013 and the sixth review was completed on March 27, 2015, for a total disbursement of SDR 2,520 million. The seventh tranche amounting to SDR 360 million will be available upon the completion of this review. Status of the program: All end-March 2015 quantitative Performance Criteria (PCs) were achieved, as well as the indicative target (IT) on cash transfers under the Benazir Income Support program. The Indicative Target on federal tax revenue was missed by a small margin, reflecting legal challenges to some of the tax measures and the negative impact of lower global commodity prices. The authorities have taken action to improve revenue and remain on track to meet the end-June 2015 fiscal deficit target. The end-March 2015 Structural Benchmarks (SBs) to (i) draft legislation to remove the authority to grant new administrative tax exemptions, (ii) reorganize the debt management office, and (iii) review to simplify tax payment processes were all met. Going forward, the authorities propose: an adjustment to the end-June PC on net international reserves (NIR) to reflect higher reserves accumulation by the State Bank of Pakistan (SBP); end-September PCs; a new IT on accumulation of arrears in the power sector; and three new SBs in the areas of tax administration, debt management, and the power sector. Key issues: Discussions focused on: (i) end-March 2015 fiscal performance and the outlook for the remainder of the fiscal year; (ii) the draft FY2015/16 budget and measures to bring the fiscal deficit to 4.3 percent of GDP, including an adjustor of 0.3 percent of GDP for one-off priority spending on security enhancements related to fighting terrorism and resettlement of internally displaced persons; (iii) addressing arrears in the power sector; (iv) saving the windfall from falling oil prices to strengthen external buffers; (v) progress on safeguarding financial stability; and (vi) structural reforms in the energy sector, privatization, central bank independence, anti-money laundering framework, public debt management, trade, and business climate to unlock Pakistan's long-term growth potential. Outreach activities included a joint press conference with the finance minister, TV and print media interviews, donor meetings, and roundtables with students and the donor community in Islamabad.