Washington DC, Following is the full text of International Monetary Fund Country Report

In the context of the First Review under the Stand-by Arrangement, the following documents have been released and are included in this package:

A Press Release including a statement by the Chair of the Executive Board.

The Staff Report prepared by a staff team of the IMF for the Executive Board’s consideration on January 11, 2024, following discussions that ended on November 15, 2023, with the officials of Pakistan on economic developments and policies underpinning the IMF arrangement under the Stand-By Arrangement. Based on information available at the time of these discussions, the staff report was completed on December 18, 2023.

A Staff Supplement updating information on recent developments.

A Statement by the Executive Director for Pakistan.

The IMF’s transparency policy allows for the deletion of market-sensitive information and premature disclosure of the authorities’ policy intentions in published staff reports and other documents.

IMF Executive Board Completes First Review of the Stand-By Arrangement for Pakistan

FOR IMMEDIATE RELEASE

Today, the Executive Board of the International Monetary Fund (IMF) completed the first review of Pakistan’s economic reform program supported by the IMF’s Stand-By Arrangement (SBA). The Board’s decision allows for an immediate disbursement of SDR 528 million (around $700 million), bringing total disbursements under the arrangement to SDR 1.422 billion (about $1.9 billion).

Pakistan’s 9-month SBA was approved by the Executive Board on July 12, 2023, in the amount of SDR 2.250 billion (about $3 billion at the time of approval), aims to provide a policy anchor for addressing domestic and external balances and a framework for financial support from multilateral and bilateral partners. The program is focused on (1) implementation of the FY24 budget to facilitate Pakistan’s needed fiscal adjustment and ensure debt sustainability, while protecting critical social spending; (2) a return to a market-determined exchange rate and proper FX market functioning to absorb external shocks and eliminate FX shortages; (3) an appropriately tight monetary policy aimed at disinflation; and (4) further progress on structural reforms, particularly with regard to energy sector viability, SOE governance, and climate resilience.

Macroeconomic conditions have generally improved, with growth of 2 percent expected in FY24 as the nascent recovery expands in the second half of the year. The fiscal position also strengthened in FY24Q1 achieving a primary surplus of 0.4 percent of GDP driven by overall strong revenues. Inflation remains elevated, although with appropriately tight policy, this could decline to 18.5 percent by end-June 2024. Gross reserves increased to $8.2 billion in December 2023, up from $4.5 billion in June, while the exchange rate has been broadly stable. The current account deficit is expected to rise to around 1½ percent of GDP in FY24 as the recovery takes hold. Assuming sustained sound macroeconomic policy and structural reform implementation, inflation should return to the SBP target and growth continue to strengthen over the medium term.

Following the Executive Board discussion, Antoinette Sayeh, Deputy Managing Director and Chair, made the following statement:

“Pakistan’s program performance under the Stand-By Arrangement has supported significant progress in stabilizing the economy following significant shocks in FY2022-23. There are now tentative signs of activity picking-up and external pressures easing. Continued strong ownership remains critical to ensure the current momentum continues and stabilization of Pakistan’s economy becomes entrenched.

“The authorities’ strong revenue performance in FY24Q1 as well as federal spending restraint have helped to achieve a primary surplus in line with quarterly program targets. However, in the context of pressures, including from provincial spending, efforts at mobilizing revenues and ongoing non-priority spending discipline need to continue to ensure that the budgeted primary surplus and debt goals remain achievable. Going forward, broad-based reforms to improve the fiscal framework—mobilizing additional revenues particularly from non-filers and under-taxed sectors and improving public financial management—are required to create fiscal space for further social and development spending.

“The authorities took challenging steps to bring both electricity and natural gas prices closer to costs in 2023. Continuing with regularly-scheduled adjustments and pushing cost-side power sector reforms are vital to improving the sector’s viability and protecting fiscal sustainability.

“Inflation remains high, affecting particularly the more vulnerable, and it is appropriate that the SBP maintains a tight stance to ensure that inflation returns to more moderate levels. Pakistan also needs a market-determined exchange rate to buffer external shocks, continue rebuilding foreign reserves, and support competitiveness and growth. In parallel, further action to address undercapitalized financial institutions and, more broadly, vigilance over the financial sector is necessary to support financial stability.

“Boosting jobs and inclusive growth in Pakistan requires continuing protection of the vulnerable through BISP and accelerating structural reforms, most notably around improving the business environment and leveling the playing field for investors, advancing the SOE reform agenda and safeguards related to the Sovereign Wealth Fund; strengthening governance and anti-corruption institutions; and building climate resilience.”

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Table 1. Pakistan: Selected Economic Indicators, FY2022­FY2024 1/

Population: 231.6 million (2022/23) Per capita GDP: US$1,456.6 (FY2023)
Quota: SDR 2,031 million Poverty rate: 21.9 percent
Main exports: Textiles (US$19.3 billion, FY2022) (national line; FY2019)
Key export markets: European Union, United States, UAE
FY2022 FY2023 FY2024
Est. Proj.
Output and prices (% change)
Real GDP at factor cost 6.2 -0.2 2.0
Employment (%)
Unemployment rate 6.2 8.5 8.0
Prices (%)
Consumer prices, period average 12.1 29.2 24.0
Consumer prices, end of period 21.3 29.4 18.5
General government finances (% GDP)
Revenue and grants 12.1 11.4 12.5
Expenditure 20.0 19.2 20.2
Budget balance, including grants -7.8 -7.7 -7.6
Budget balance, excluding grants -7.9 -7.8 -7.7
Primary balance, excluding grants -3.1 -0.8 0.4
Underlying primary balance (excluding grants) 2/ -2.3 -0.6 0.4
Total general government debt excl. IMF obligations 74.1 74.7 70.3
External general government debt 27.4 28.5 27.4
Domestic general government debt 46.6 46.2 42.9
General government debt incl. IMF obligations 76.2 77.1 72.8
General government and government guaranteed debt incl. IMF 80.7 81.3 76.8
Monetary and credit (% change, unless otherwise indicated)
Broad money 13.6 14.2 11.0
Private credit 17.4 2.3 5.0
Six-month treasury bill rate (%) 3/ 11.0 18.3 …
Balance of Payments (% GDP, unless otherwise indicated)
Current account balance -4.7 -0.7 -1.6
Foreign direct investment 0.5 0.5 0.3
Gross reserves (millions of U.S. dollars) 4/ 9,821 4,455 9,101
Months of next year’s imports of goods and services 2.0 0.8 1.5
Total external debt 32.2 34.4 34.9
Exchange rate (% change)
Real effective exchange rate -5.9 -8.0 …
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EXECUTIVE SUMMARY

Recent developments. Following the 2022 floods and the acute financial pressures earlier in the year, economic activity has stabilized and inflation has begun to gradually decline on the back of strong policy adjustment. External pressures have eased somewhat since June, and the SBP has taken advantage of renewed inflows to begin rebuilding foreign exchange (FX) reserves. Fiscal performance has also improved, with the general government achieving a primary surplus in FY24Q1. Despite this welcome

progress, the outlook is still challenging, and downside risks remain exceptionally high.

Program performance. The 9-month Stand-by Arrangement (SBA) approved on July 12, 2023, is on track. All but one of the seven QPCs for end-September were met, and while the ceiling on the general government primary budget deficit was missed, the deviation was minor and accounted for by technical factors. All but one structural benchmark for end-November were completed. Support from multilateral and bilateral creditors has been strong and financing assurances are in place.

Policies. Timely and consistent implementation of program policies remains critical, with no room for slippage. Strict adherence to the fiscal targets, while protecting development needs and strengthening the social safety net, is essential to alleviate pressures and place debt on a downward path. Maintaining a market-determined exchange rate will help buffer external shocks, rebuild reserves, and support economic recovery. Monetary policy needs to stay tight and proactive, and the Monetary Policy Committee (MPC) should respond swiftly and forcefully if signs of inflationary pressures reemerge. Recent increases in electricity and gas tariffs were important to shore up energy sector viability, but broader reforms are still needed to tackle the structurally high energy sector costs. Reforms of state-owned enterprises and of the governance framework, including safeguards for the newly-created Sovereign Wealth Fund, should be accelerated to strengthen the business environment, investment, and job creation.

SBA review. Staff supports completion of the review, which would make available SDR 528 million, bringing total access to SDR 1,422 million, and help anchor essential financing from official partners.

RECENT ECONOMIC DEVELOPMENTS

1. The caretaker government in place until elections are held in February 2024 has managed to maintain economic stability on the back of decisive policy efforts. The National Assembly was dissolved on August 9, 2023, and the Election Commission has announced that the elections will take place on February 8, 2024. Although controversial initially, as it went beyond the constitutional 90-day limit from the dissolution of parliament, the Election Commission argued that the extension was needed to redraw constituency boundaries after the outgoing government’s decision to base elections on the new 2023 Census. In the meantime, the caretaker government has made decisive efforts to ease financial pressures and maintain stability in this interim period.

2. Macroeconomic conditions have improved, though they remain challenging.

Economic activity. GDP contracted by 0.2 percent in FY23, slightly less than expected, due to the impact of the floods and difficult external conditions fueled by uneven policies during the year. So far in FY24, domestic demand has remained weak, weighed down by restrictive policies, but the gradual easing of financial pressures and the shift toward accommodation of imports have given some impetus to the economy. In November 2023 the Pakistan Bureau of Statistics published the first quarterly national accounts, with GDP estimated to have increased 2.1 percent yoy in FY24Q1, with a strong agricultural recovery (+5.1 percent yoy) offsetting weaker industrial (+2.5 percent) and service sector (+0.8 percent) growth.

Foreign exchange market. After some flexibility following the SBA’s approval, the interbank exchange rate came under pressure in early September, which the authorities attributed to speculation and smuggling of FX and goods over the Afghan border. In response, the authorities tightened border enforcement and the SBP announced measures to strengthen capital and governance requirements for exchange companies (ECs). The rupee strengthened gradually through mid-October on the back of strong inflows in the FX market, but weakened more recently, returning to around end-June levels. The open market premium has largely been eliminated, although interbank trading volumes have weakened significantly in recent months. Market participants have acknowledged greater autonomy for processing import transactions in recent months compared to FY23H2, and the repatriation of dividends and profits have also picked up. Nonetheless, some complaints persist about insufficient access to FX via banks amongst businesspeople and foreign
investors.

Inflation and monetary policy. Headline inflation declined from 38 percent in May to 26.8 percent in October, but picked up in November to 29.2 percent, reflecting November’s large gas tariff increase. Nonetheless, core inflation has remained relatively stable at around 21 percent since June. The MPC has kept the policy rate at 22 percent since late June 2023, considering that easing supply constraints, restrictive fiscal policy, and weak demand (reflected in negative private credit growth and a sharp slowing of reserve money in FY24H1) would place downward pressure on inflation in FY24H2.

External conditions. After declining to US$2.2 billion (0.7 percent of GDP) in FY23 on the back of tight financing constraints, the current account deficit reached US$0.9 billion in FY24Q1, as imports recovered following the removal of the prioritization guidance. Gross reserves have increased to US$7 billion (Figure 2, up from US$4.5 billion in June), supported by the resumption of official inflows—including over US$3 billion of bilateral financing—and FX purchases amid favorable market conditions. Sovereign spreads remain very high but have decreased from around 2,300 basis points in early July to below 1,500 basis points in late November.

Banking sector. Banks’ sovereign exposure has grown from 48 percent of assets at end-FY21 to 55.3 percent at end-September 2023, with private sector credit contracting (-1 percent, yoy). As of end-September 2023, banks’ capital adequacy ratio (CAR), at 19.1 percent, remains well above the regulatory minimum of 11.5 percent (including the capital conservation buffer). NPLs increased to 7.7 percent, with provisioning at 95.5 percent. Three banks (two private and one public) continue to report CAR below the regulatory minimum and the microfinance bank sector faces vulnerabilities in the aftermath of the 2022 floods.

Fiscal developments. In FY23, the primary deficit reached 1.3 percent of GDP, 0.3 percent higher than anticipated at the time of the SBA approval, mainly driven by higher development spending by the federal government. So far in FY24, Pakistan’s fiscal position has improved on the back of the SBA-related budget execution and strong revenue performance, with the general government achieving a primary surplus of 0.4 percent of GDP in FY24Q1. Overall revenue performance was strong, 0.1 percent of GDP above program projections. In particular, strong collection from PDL, excises, and direct taxes offset weaker than anticipated import-related revenues. Federal spending aligned closely with initial SBA projections, with some underspending on power subsidies and public sector development program (PSDP) attributed to technical delays and expected to be fully executed in Q2. Provincial spending exceeded projections in Q1, partly due to a PRs 115 billion payment by the Punjab government to clear commodity operations deb
t and faster execution of PSDP. Provincial PSDP spending is anticipated to remain close to the Q1 level in Q2-Q3, given caretaker governments’ limitations in establishing new schemes.

Pakistan: Fiscal Developments

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Tax Revenue Performance in FYQ1 (PRs billions)
FY22/23 FY23/24 Growth (%)

Tax revenue 2019.4 2685.6 33.0
Federal 1838.4 2476.3 34.7
FBR 1643.8 2041.4 24.2
Domestic tax 904.7 1233.1 36.3
Direct tax 614.0 845.3 37.7
Sales tax 214.2 266.6 24.4
FED 76.5 121.2 58.5
Import tax 739.1 808.3 9.4
Direct tax 74.3 89.4 20.3
Sales tax 430.5 460.3 6.9
FED 2.6 6.4 143.2
Custom 231.6 252.2 8.9
Other federal 194.6 434.9 123.5
Provincial 181.0 209.3 15.6
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Energy sector. The caretaker government took significant action in the power and gas sectors to stem the rise in circular debt (CD), which, combined, reached approximately 5¼ percent of GDP at end-FY23.1 In the power sector, the authorities notified the annual tariff rebasing in late July (end-July 2023 SB), as well as monthly and quarterly tariff increases thereafter. Despite this effort, power CD reached PRs 2.5 trillion at end-September (2.4 percent of GDP), mostly due to lower than expected recoveries, driven in part by a delay in the rebasing’s billing application. The authorities increased natural gas tariffs sharply on November 8, partly due to the fact that no gas tariff adjustments had occurred between September 2020 and January 2023. Key features of the gas tariff increase included: (i) maintaining a progressive rate structure for households, with unchanged variable charges for protected households (around 60 percent of meters); (ii) significant tariff increases for most non-household consumers; and
(iii) higher rates for industrial captive power users relative to non-captive users. In both the power and gas tariff adjustments, low-income and vulnerable households were protected against the increases.

PROGRAM PERFORMANCE

3. Overall performance against end-September quantitative performance criteria (QPCs), Indicative Targets (ITs), and Structural Benchmarks (SBs) under the SBA was satisfactory (MEFP Tables 1–2).

Performance Criteria (PCs). At end-September 2023, the authorities met six quantitative PCs: the floors on: (i) net international reserves of the SBP; and (ii) targeted cash transfers spending (BISP); and the ceilings on: (iii) the SBP’s FX swap/forward book; (iv) net domestic assets of the SBP; (v) net government budgetary borrowing from the SBP; and (vi) the amount of government guarantees. They also met the two continuous PCs on: (i) zero new flow of SBP credit to the government; and (ii) zero external public payment arrears. The ceiling on the general government primary budget deficit was missed by a small margin, with this deviation accounted for by technical factors (exchange rate valuation of external financing flows).

Indicative targets (ITs). The authorities met three end-September ITs: the floors (i) on net tax revenue collected by FBR; and (ii) budgetary health and education spending; and the ceiling on (iii) net accumulation of tax refund arrears. However, the IT on power sector payment arrears was missed by a large margin, mostly due to under-recoveries in August (¶2) as well as a lower-than anticipated tariff set in the annual rebasing.

Structural benchmarks (SBs). The structural benchmarks (SBs) on the notification of the FY24 annual rebasing, and the compilation and dissemination of quarterly national accounts were met. The continuous SB on the average premium between the interbank and open market exchange rate was missed from mid-August to early-September, but subsequent structural reforms in the EC sector should enhance governance and transparency and reduce the risk of future deviations. Strong progress was made on the end-November SB on improving SOE governance, including (i) the operationalization of the SOE Act into a policy that clarifies ownership arrangements and roles; and (ii) significant progress, via ordinance, on amending the Acts of four selected SOEs to make the new SOE Act fully applicable, although final amendments remain to be completed via updated ordinance and/or adopted by parliament.

OUTLOOK AND RISKS

4. The baseline macroeconomic outlook has been updated to reflect the more subdued near-term outlook for domestic demand (Tables 1–8):

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Pakistan: Selected Economic Indictors, FYs 20/21­27/28 1/
2020/21 2021/22 2022/23 2023/24 2024/25 2025/26 2026/27 2027/28
Proj.
Real GDP growth (%) 5.8 6.2 -0.2 2.0 3.5 4.5 5.0 5.0
Consumer prices (period average, % change) 8.9 12.1 29.2 24.0 11.7 7.7 6.6 6.6
Gen. gov. overall balance (incl. grants, % of GDP) -6.0 -7.8 -7.7 -7.6 -7.3 -5.7 -5.1 -4.6
Gen gov. primary balance (underlying, excl. grants, % of GDP) 2/ -0.5 -2.3 -0.6 0.4 0.4 0.4 0.4 0.4
Gen. gov. debt (incl. IMF obligations, % of GDP) 73.5 76.2 77.1 72.8 70.9 69.7 67.7 65.7
Current account balance (% of GDP) -0.8 -4.7 -0.7 -1.6 -1.5 -1.5 -1.5 -1.6
Gross official reserves (billions of US$) 17.3 9.8 4.5 9.1 13.0 16.8 19.5 20.7
Gross official reserves (months of next year’s G&S imports) 2.5 2.0 0.8 1.5 2.0 2.4 2.6 2.7
Gross official reserves (% of IMF ARA meteric) 3/ 72.6 41.3 19.6 41.4 54.3 66.1 72.5 71.8
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Real GDP growth. Reflecting weaker domestic demand, projected growth has been revised down to 2.0 percent in FY24 (from 2.5 percent). While positive base effects from flood recovery (especially in agriculture and the textile sector) are materializing, continued external challenges and necessarily tight fiscal and monetary policy are expected to mute consumption and private investment.

Inflation has generally moderated since June on easing food and energy prices, and headline CPI is now projected to average 24 percent in FY24. While the November gas tariff increase will add to headline inflation in coming months, gradual declines are expected given lower core inflation and recent commodity price movements, with year-end inflation revised to 18.5 and 9 percent in FY24 and FY25, respectively.

Balance of Payments. For FY24, the current account deficit (CAD) is projected at US$5.6 billion (1.6 percent of GDP), below the US$6.5 billion projected in the SBA Request. The import rebound is now expected to be more muted, reflecting weaker domestic demand, while exports and remittances are also more muted. Staff expects the CAD to remain around 1½ percent of GDP over the medium term, reflective of a market-determined exchange rate consistent with a sustainable CAD and efforts to rebuild reserves.

Public debt. Despite a notable improvement in market sentiment since June, risks to debt sustainability remain acute given large gross financing needs and scarce external financing. Assuming decisive implementation of program policies, which would be sustained over the medium term, and adequate multilateral and bilateral financing, public debt would remain sustainable (SRDSF, Annex I). However, policy slippages, insufficient financing or elevated gross financing needs, realization of contingent liabilities and downward risks to the baseline could all undermine the narrow the path to debt sustainability. With low reserves and scarce market financing, FX payments will remain a persistent challenge, and real interest rates have become an adverse driver of debt dynamics, with interest absorbing more than half of general government revenue.

5. Downside risks remain exceptionally high. External financing risks are exceptionally high and delays in the disbursement of planned financing from IFIs or bilateral partners could pose major risks to the government’s program given limited buffers. Any external financing shortfalls would increase the government’s reliance on expensive financing from domestic banks, and could further crowd out private credit. Higher commodity prices and tighter global financial conditions, including due to the intensification of geopolitical conflicts, could put pressure on the exchange rate and external stability. Additionally, political tensions ahead of the upcoming elections may weigh on policy decisions and reform implementation.

POLICY DISCUSSIONS

A. Fiscal Policy

6. The authorities remain committed to achieving a general government primary surplus of PRs 401 billion (0.4 percent of GDP), although securing this requires some additional effort. While the FY24Q1 fiscal targets were met, rapid provincial spending and the shortfall in SBP profits (0.1 percent of GDP) imply the need for some measures to guarantee this goal:

Strengthening revenue collection to ensure alignment with the FY24 budget. To achieve this the FBR has commenced bringing nine hundred thousand identified non-filers into the tax net. The FBR will issue initial notifications to these taxpayers by mid-December and has established a monitoring system to track the yield of this operation, with corrective measures planned should collections fall short. Further reforms to enhance revenue administration, including antismuggling efforts and close monitoring of the track and trace system are also underway. Finally, should revenue fall short in FY24 (MEFP 6), the authorities have identified several contingent measures which can be adopted (MEFP 8b)

Containing primary expenditure to PRs 12,915 billion (11.9 percent of GDP) while preserving space for priority social spending (MEFP 6). Salary and pension increases will be restricted to the allocated budget of the respective entities and, within this envelope, the generosity of the BISP unconditional cash transfer (UCT) Kafaalat will be protected. Energy subsidies are also limited to PRs 976 billion as per the budget.

Improved fiscal coordination with provincial governments. Improved coordination with the provinces, including through updated MoUs with the federal government, will help guarantee their FY24 budget targets. Furthermore, the Punjab government has committed, through its MoU, to curtail its expenditure by PRs 115 billion for the remainder of FY24 to achieve the committed surplus associated with the FY24 budget. Relatedly, provincial governments have agreed to rectify the decade-long accumulation of commodity debts (created by provincial food departments outside the government’s fiscal perimeter) by implementing time-bound plans for the timely retirement of this debt.

7. Broad-based reforms to improve the fiscal framework remain essential.

Strengthening revenue mobilization (MEFP 8a,c). The authorities are advancing reforms to lay out a tax policy agenda to raise additional revenue, including from currently undertaxed sectors, alongside supportive administration reforms. These efforts are being supported by an IMF tax diagnostic exercise to shape the agenda for future reforms. In addition, the authorities are advancing efforts to: (i) adopt a documentation law, currently in the final stages of legal procedures for adoption, which mandates 145 organizations to regularly share information with the FBR; (ii) establish a Compliance Risk Management team within the FBR focused on comprehensive risk analysis and analytics; (iii) implement the e-invoicing system, scheduled for December 2023; and (iv) launch a door-to-door campaign in four provincial capitals and Islamabad, to register non-filing retailers, which would streamline tax filling processes and significantly expand the tax base.

Enhancing Public Financial Management (PFM) (MEFP 8d, 24b). The authorities have requested IMF TA to strengthen budget preparation and execution, and improve coordination and fiscal reporting with the provinces, which could help critically strengthen the process ahead of the FY25 budget. The recently completed Climate-PIMA assessment provides an action plan for the authorities to strengthen public investment management, including to tackle climate challenges, over the period ahead. The authorities have also made progress on operationalizing the treasury single account (TSA-2), which now encompasses 231 accounts, and have requested TA from the ADB to further refine forecasting and cash management.

Increasing spending transparency (MEFP 8d). Full implementation of the electronic procurement system (e-PADS), with support from the World Bank, will enhance federal and provincial spending transparency including over beneficial ownership and conflicts of interest.

Improving debt management. Some progress has been made in resolving staffing issues in the Debt Management Office (DMO), but challenges remain in attracting skilled professionals. Staff and the authorities agreed that while deepening financial markets and widening the investor base for domestic securities are desirable, the government’s borrowing requirement must continue to fall, and that a ceiling on government guarantees remains a key tool for limiting debt risks outside the general government perimeter. Going forward, to strengthen transparency in debt reporting, SOE debts related to commodity operations should be included in the guarantee perimeter.

B. Poverty Reduction and Social Protection

8. Protecting the most vulnerable by strengthening social protection and social spending levels is key to Pakistan’s development. Social protection spending was on pace in FY24Q1 to execute the FY24 BISP envelope of PRs 472 billion (0.4 percent of GDP), a 30 percent increase over BISP spending in FY23 (excluding one-off flood-related spending). This year’s BISP envelope allows the authorities to absorb an additional 300,000 families into BISP’s unconditional cash transfer (Kafaalat) program, bringing enrollment to 9.3 million families. In addition, the planned inflation adjustment of the Kafaalat stipend in January 2024 (end-January 2024 SB) will protect the scheme’s current real generosity level. 3 The authorities should also accelerate the enrollment of participants into BISP’s conditional cash transfer programs supporting education, health, and nutrition, for which an additional 1.2 million new children and 0.8 million new families, respectively, are targeted for enrollment in FY24.

9. BISP’s administrative apparatus should continue to improve. The National Socio-Economic Registry’s dynamic registry is fully operational nationwide. With payments now made through a real time, biometric-based mechanism, BISP is able to quickly respond to shocks. However, there is scope to improve the efficiency and transparency of its disbursement mechanisms.

10. Continued efforts to execute social programs outside BISP are needed. While the end-September health and education spending target was met, the authorities expect to fall short of the original end-December target, partly due to limits on the caretaker government’s ability to execute new projects. Execution of this spending needs to continue later this fiscal year when the new government is formed. Separately, the protection of the most vulnerable through lifeline and protected power and gas tariff slabs (14) must continue until, over the longer term, they can effectively be replaced by a targeted BISP scheme.

C. Monetary, Exchange Rate and Financial Sector Policies

11. A tight monetary stance is critical to reduce inflation, re-anchor expectations, and support external sector rebalancing through the exchange rate. While staff sees the stance as broadly appropriate at the current juncture given weak domestic demand, the MPC should stand ready to respond resolutely if near-term price pressures reemerge, including due to second-round effects, and ensure that the real policy rate remains in clear positive territory. Further, it is important to continue work towards improving monetary transmission, including through the gradual phaseout of SBP’s involvement in refinancing schemes (MEFP ¶14), and by strengthening internal control systems around monetary policy lending operations as recommended by the 2023 Safeguards Assessment Report (March 8, 2024 SB, 20, MEFP 13).

12. Supporting the return to a market-determined exchange rate requires a gradual deepening of the FX market and avoiding any actions to manage the current account. Staff emphasized that deepening FX market liquidity should result in a rebound in trading volumes to levels seen some months ago and could only occur if banks are encouraged to manage FX flows via the interbank market, offering exchange rates to ensure FX flows into the system when needed. To ensure that the exchange rate can act as a shock absorber, the authorities must refrain from formal or informal restrictions. Staff and the authorities agreed that SBP’s interventions in the FX market should remain guided by the objective of building FX buffers, with sales not to be used to prevent trend depreciation of the rupee driven by fundamentals. Meanwhile, the authorities agreed to redouble efforts to eliminate the existing exchange restriction4 and multiple currency practice5 in early 2024. The SBP’s planned reforms of the EC sector could improve ove
rsight, governance, and transparency, but further efforts to monitor the pricing in the informal exchange rate markets would helpfully identify periods of market dysfunction.

13. Close monitoring of the banking sector remains essential, and actions to address undercapitalized institutions should move to conclusion. The SBP recently implemented risk based bank supervision, while banks will have to adopt IFRS 9 on January 1, 2024. Amendments to the bank resolution and deposit insurance legislation will further strengthen Pakistan’s crisis management framework (submission to parliament (Senate), end-December 2023 SB, MEFP 16c). The authorities continue slow progress on the three undercapitalized banks: The public bank is being wound down and the SBP intends to put the legal entity into liquidation by end-March 2024. However, two private banks remain undercapitalized, despite some progress in partially recapitalizing one bank, and the authorities have committed to ensuring compliance with capital requirements within six months (MEFP 16a). The authorities also highlighted their efforts to tackle pockets of vulnerability in the microfinance sector, including by asking owners to provide
timebound recapitalization plans where necessary, and confirmed to postpone the extension of the deposit insurance scheme to the sector until the issues have been addressed.

D. Energy Sector Policy

14. Timely implementation of scheduled tariff adjustments and broader reform efforts are critical to restoring energy sector viability.

Power. The authorities’ August 2023 FY24 circular debt management plan (CDMP) would contain the CD stock to its end-FY23 level of PRs 2,310 billion (2.2 percent of GDP). The plan includes the budgeted FY24 subsidy to the power sector of PRs 976 billion (0.9 percent of GDP), including direct support of PRs 584 billion (0.6 percent of GDP) and CD stock payments of PRs 392 billion (0.4 percent of GDP). Key measures include:

Continued timely alignment of tariffs with cost recovery levels to prevent further annual CD accumulation (a temporary intra-year CD stock increase is expected due to subsidy disbursement and tariff patterns) and avoid further fiscal pressures while ensuring electricity generation (MEFP 18a). The progressive lifeline and protected slab tariff structure must be maintained to shield the vulnerable household consumers.

Collections enhancement. With under-recoveries projected at PRs 263 billion (0.2 percent of GDP) in FY24, sustaining the enhanced collections efforts initiated in early September (MEFP 18c) will complement tariff increases.

Further progress on reforms (MEFP 18) to reduce high costs, improve DISCO performance, and increase competition and green energy. Reforms include (i) improving price signals for inputs, notably gas (see below); (ii) moving to private sector management of DISCOs through long-term concessions from 2024; (iii) renegotiating the terms of remaining power purchase agreements; (iv) continuing to convert publicly-guaranteed PHPL debt into cheaper public debt; (v) expanding renewable energy capacity; and (vi) improving transmission efficiency.

Gas. Following the November tariff increase, further efforts include:

Regular (automatic) implementation of semiannual gas tariff adjustments, including OGRA’s December 2023 determination within the required 40-day window (SB February 15, 2024, MEFP 19a);

The full phasing out of captive power usage, which reduces demand for electricity generated in the grid, forces electricity tariffs of grid consumers to cover unused capacity, and exacerbates power sector liquidity pressures (MEFP 19b);

Establishing a more level playing field among non-household consumers, including by eliminating cross-subsidies to fertilizer producers and favorable rates for well-connected industries (MEFP 19c); and the formalization of a CD stock reduction plan (MEFP ¶19e).

E. Structural Policies

15. Continued efforts on the structural reform agenda are critical to improving living standards, socioeconomic outcomes, and climate resilience, and reducing vulnerability to corruption. Key aspects of the agenda include:

Strengthening SOE governance, transparency, and efficiency. The authorities have made strong progress, with ABD support, in implementing the SOE Act that took effect in early 2023. This includes adoption of a policy to operationalize the law; and the amendment via ordinance of four SOE-dedicated laws to bring them in line with the new SOE Act (end-November 2023 SB). Remaining steps toward full alignment of the individual SOE laws with the new SOE Act will require either an updated ordinance or adoption of these amendments by the new parliament (MEFP 21a). After some delays in the recruitment process, the authorities are also making progress toward fully staffing a Central Monitoring Unit within the Ministry of Finance (end-December 2023 SB), which will play a key role in SOE monitoring, reporting, and governance.

A new Sovereign Wealth Fund (SWF) poses governance risks. The creation of a SWF in August 2023, comprising seven profitable SOEs (worth about US$8 billion), presents governance- and public financial management-related challenges: These SOEs are exempted from the SOE Act’s best practice structure, including safeguards related to corporate governance, monitoring, and transparency and accountability. The authorities have recognized this by agreeing to swiftly introduce safeguards to address these challenges (MEFP 8d and MEFP 21b). These efforts should also be aligned with current SOE privatization and restructuring efforts and the March 2021 SOE Triage Plan.

Improving the business environment to attract investment and create jobs. Maintaining a level playing field for all investors is critical to sustainably attracting the high-quality, long-term investments that Pakistan needs. In this regard, the legal establishment in August 2023 of the Special Investment Facilitation Council (SIFC), endowed with powers to offer regulatory relief and other immunities in an attempt to attract investment and improve intra-governmental coordination, should be accompanied by the safeguards committed by the authorities (MEFP 22), bringing projects identified through the SIFC under Pakistan’s existing public investment management framework to ensure accountability and transparency.

Building effective anti-corruption institutions that will enhance the business climate, safeguard public funds, and boost public and donor confidence (MEFP 23). The authorities have committed to publishing the full UNCAC report and completing the review of Pakistan’s anti-corruption institutions by a taskforce with participation of independent experts. The review should identify key corruption vulnerabilities and reform actions to strengthen the independence and effectiveness of institutions (including the National Accountability Bureau, the anti-corruption investigative agency). Integration of asset declarations held by the FBR and the AML/CFT compliance functions of banks consistent with best practices would help detect, prevent, and deter the laundering of proceeds of corruption, tax evasion and smuggling through the financial sector.

Efforts to build up climate change adaption capacity and resilience are critical. This includes implementation of the recently-adopted National Adaptation Plan (NAP), focused on six priority sectors; realigning the existing PSDP portfolio with NAP objectives; carrying out a costing exercise for new projects; and exploring channels for mobilizing climate finance. In parallel, the authorities should advance the recommendations of the IMF’s recent Climate-PIMA (cabinet adoption end-December 2023 SB, MEFP 24b).

PROGRAM MODALITIES AND CAPACITY TO REPAY

16. The authorities have requested the following updates to program conditionality (MEFP Tables 1-2):

The end-December PCs for the ceilings on: (i) SBP’s stock of net foreign currency swaps/forward position; and (ii) net domestic assets of the SBP; and the floor on (iii) SBP’s net international reserves, are all proposed to be tightened, to lock in progress in rebuilding SBP’s reserves. The end-December PC on the general government primary budget deficit is also proposed to be adjusted, to balance quasi-fiscal effort through the year while remaining consistent with the 0.4 percent of GDP target for FY24.

The following end-December ITs would be modified: (i) the nominal floor on general government budgetary health and education spending, to maintain cumulative Q2 spending at about 1 percent of GDP; and (ii) the ceiling on power sector payment arrears, for consistency with the August CDMP.

The following new structural benchmarks are proposed: (i) notification of the December 2023 semi-annual gas tariff adjustment determination (February 15, 2024); and (ii) for the SBP to develop a plan to strengthen internal controls systems in lending operations, in line with the recommendations from the 2023 Safeguards Assessment (March 8, 2024).

Rephasing of access for the second review, to March 15, 2024, to provide sufficient time to complete the program’s structural agenda (Table 9b).

17. Financing. The program is fully financed and the reserve position at end-FY24 is consistent with program objectives (Table 3a), although risks remain exceptionally high. Over US$3 billion in commitments made at the time of the SBA request have already been delivered, with an additional US$1 billion in multilateral support expected by end-2023. Further assurances for bilateral support of US$0.7 billion were reconfirmed ahead of this review. However, the Islamic Development Bank is now likely to deliver only a small fraction of the US$1 billion pledged ahead of the SBA during the program period. Offsetting that, a debt rearrangement with a major bilateral creditor has generated amortization savings of around US$1.2 billion in both FY24 and FY25. Nonetheless, financing risks remain exceptionally high, arising from large public sector external rollover needs, a persistent current account deficit, a difficult external environment for Eurobond and Sukuk issuance, and limited reserve buffers in case of delays to
anticipated inflows.

18. Capacity to repay. Pakistan’s capacity to repay the Fund is subject to significant risks and remains critically dependent on policy implementation and timely external financing. The Fund’s exposure reaches SDR 5,972 million (or 294 percent of quota and about 103 percent of projected gross reserves at end-January 2024) with purchases linked to the review (Table 9b). With completion of all purchases under the arrangement, it would peak at SDR 6,673 million in March 2024 (329 percent of quota and about 102 percent of projected gross reserves at end-March 2024). Exceptionally high risks-notably from delayed adoption of reforms, high public debt and gross financing needs, low gross reserves and SBP’s sizeable net FX derivative position, the recent decline in inflows, and sociopolitical factors-could jeopardize policy implementation and erode repayment capacity and debt sustainability. Restoring external viability is critical to ensure Pakistan’s capacity to repay the Fund, and hinges on strong policy implement
ation, including beyond the SBA. Uncertainty about global economic and financial conditions, amid several successive shocks, adds to these risks. Adequate and timely execution of the firm and credible financing assurances from official creditors remains essential to mitigate these risks.

19. Enterprise Risks. The SBA poses a number of enterprise risks which are broadly unchanged from the time of program approval. As the fourth largest GRA credit exposure, Pakistan represents a significant concentration risk, with GRA credit outstanding representing 30 percent of FY23 precautionary balances assuming full disbursement of the SBA. Risks in capacity to repay are significant (18). Several factors help mitigate these risks including targeted macrocritical conditionality, phased access, burden sharing, adequate financing assurances for the program, including from key multilateral and official bilateral creditors, and assurances of broad political support for the program’s objectives and policies. Reputational and engagement risks could result from program disruptions due to partial implementation of policies necessary for adjustment or new measures not aligned with the program objectives, although the caretaker government’s ongoing commitment to strong policy implementation and timely completion of
the reviews help mitigate these risks. Sociopolitical tensions could also create a challenging environment for program implementation. These risks are mitigated by calibrated communication and outreach strategies which seek to ensure a broad-based understanding of importance of the actions underpinning the Fund-supported program, including through direct outreach to CSOs, as well measures to ensure that the vulnerable are protected. Other non-financial risks (such as described in 5) are mitigated by the review-based nature of Fund lending, which allows policies and conditions underpinning Fund-supported program to be adjusted as macroeconomic circumstances change. Pakistan’s challenging security situation also poses risks, although all in-country Fund activities are closely coordinated in line with Fund policies and supported by UNDSS.

20. An updated safeguards assessment of the SBP is completed. The assessment found a broadly sound safeguards framework, with all recommendations from the 2019 assessment implemented. Legal amendments to the SBP Act in 2022 have significantly improved the institutional framework for autonomy and governance of the central bank, with SBP ceasing monetary financing and beginning the phase out of quasi-fiscal development schemes. However, monetary policy reverse repo operations have increased substantially in recent years, and the assessment recommended stronger risk mitigation measures, including by enhancing SBP’s collateral policy and establishing a counterparty eligibility policy (11, MEFP 13).

STAFF APPRAISAL

21. The authorities’ program is on track, with tentative signs that the economy is stabilizing and external pressures are easing. While demand remains weak, economic activity is picking up, although gradually, and inflation has started to decline, though remaining elevated. External pressures have eased somewhat, and the SBP has taken advantage of inflows to begin rebuilding FX buffers. Fiscal performance has also improved, with the general government registering a primary surplus in FY24Q1. While the current SBA has provided a much-needed respite, and the caretaker government deserves credit for its steadfast implementation, Pakistan’s medium term challenges remain acute, and the current policy efforts need to continue to address them in a sustainable manner.

22. The authorities’ measures to safeguard the FY24 primary surplus target are welcome, but further fiscal reforms remain essential to reduce debt to more sustainable levels. Strict adherence to the budget is necessary to mitigate significant risks to macroeconomic stability and fiscal sustainability. Future revenue mobilization efforts should focus on improving revenue administration, ensuring proper tax policy implementation, and expanding the base through measures targeting under-taxed sectors. In parallel, while safeguarding social assistance, nonpriority spending will need to be curtailed and projects prioritized. In this regard, enhancing public financial management is critical for optimizing the efficiency of scarce resources.

23. Reducing poverty and effectively protecting the most vulnerable require strengthening of social spending and institutions. Staff welcomed the higher nominal BISP budget envelope for FY24, the expansion of the UCT beneficiary base, and new enrollments into CCT schemes, but called for greater efforts to maintain planned health and education spending.

24. Given elevated near-term inflationary risks, monetary policy needs to remain tight and proactive to guide inflation back to target. Although the forward-looking real policy rate has returned to positive territory, there is no room for complacency given near-term risks. With inflation expectations still not firmly anchored, utmost caution is warranted and the MPC should respond forcefully and without delay if inflationary pressures reemerge.

25. Ensuring a market-determined exchange rate is critical to help buffer external shocks, rebuild SBP’s FX reserves, and support growth. Restoring public confidence in the exchange rate system and deepening the FX market will require allowing price signals to function without impediment and decisively abandoning tight management of the FX market. Relatedly, signaling strongly that repatriation of profits and dividends will not be restricted remains indispensable to attract high-quality FDI. Imperfect FX market functioning undermines economic activity and thus the intense fixation by politicians and other stakeholders on the level of the exchange rate is ultimately damaging to private inflows and growth. The existing exchange restriction and the MCP should be eliminated as soon as possible.

26. Maintaining financial stability requires continued vigilance. This includes ensuring all banks and microfinance banks are compliant with the minimum capital requirements or exit the market. Passing the legal reform of the crisis management framework is crucial to ensure the authorities have the appropriate powers and toolkit to deal with weak institutions.

27. Recent electricity and natural gas tariff increases demonstrated the caretaker government’s willingness to take bold steps to shore-up energy sector viability. It is critical that the authorities continue to implement tariff adjustments on time, while maintaining a progressive structure to protect the most vulnerable households. Swift movement is needed on broader reforms to reduce operational inefficiencies, improve performance, and reduce distortions that combine to continue to add pressure on CD flows.

28. Structural reforms must progress to create a basis for sustainable and inclusive growth. Continued progress on SOE governance and anti-corruption institutional reform is essential-including introducing sufficient governance measures for the newly-created SWF and SIFC alongside business environment improvements and critical climate change adaption efforts.

29. Risks remain exceptionally high and tilted to the downside. External headwinds remain strong with tight global financial conditions, volatile food and fuel prices, and geopolitical tensions, including due to the conflict in Gaza and Israel. Wavering reform efforts could undermine the adjustment effort, put pressure on the exchange rate, and affect the availability of external financing.

30. While recognizing these risks, staff supports the authorities’ request for completion of the first review under the SBA, modification of performance criteria and rephasing of access (16). Staff also supports the authorities’ request for a waiver of nonobservance for the end-September QPC on the general government primary budget deficit, as the deviation was minor and will not affect program goals.

!1
Table 1. Pakistan: Selected Economic Indicators, 2018/19­2024/25 1/
Population: 231.6 million (2022/23) Main exports: Textiles (US$16.5 billion, 2022/23)
Per capita GDP: US$1,456.6 (2022/23) Unemployment: 6.2 percent (2021/22)
Poverty rate: 21.9 percent (at national line; 2018/19)
2018/19 2019/20 2020/21 2021/22 2022/23 2023/24 2024/25
Prog. Est. Prog. Proj. Proj.
Output and prices (Annual percentage change)
Real GDP at factor cost 3.1 -0.9 5.8 6.2 -0.5 -0.2 2.5 2.0 3.5
GDP deflator at factor cost 9.2 9.9 10.4 14.1 26.0 26.1 25.9 24.0 11.7
Consumer prices (period average) 6.7 10.7 8.9 12.1 29.6 29.2 25.9 24.0 11.7
Consumer prices (end of period) 8.0 8.6 9.7 21.3 34.0 29.4 16.2 18.5 9.0
Pakistani rupees per U.S. dollar (period average) 24.0 16.0 1.2 11.0 … 39.8 … … …
Pakistani rupees per U.S. dollar (end of period) 31.7 5.0 -6.3 30.0 … 39.6 … … …
Saving and investment (Percent of GDP)
Gross saving 11.3 13.3 13.7 10.7 12.4 13.0 12.8 12.0 12.3
Government -5.5 -4.7 -3.9 -5.4 -5.5 -5.5 -5.4 -5.7 -5.2
Nongovernment (including public sector enterprises) 16.8 18.1 17.6 16.1 17.9 18.5 18.2 17.7 17.4
Gross capital formation 2/ 15.5 14.8 14.5 15.4 13.5 13.7 14.7 13.6 13.8
Government 2.3 2.3 2.2 2.4 2.0 2.2 2.1 2.0 2.1
Nongovernment (including public sector enterprises) 13.2 12.5 12.4 13.0 11.5 11.5 12.6 11.6 11.7
Public finances
Revenue and grants 11.3 13.3 12.4 12.1 11.4 11.4 12.3 12.5 12.4
Expenditure (including statistical discrepancy) 19.1 20.3 18.5 20.0 18.9 19.2 19.8 20.2 19.7
Budget balance (including grants) -7.8 -7.0 -6.0 -7.8 -7.6 -7.7 -7.5 -7.6 -7.3
Budget balance (excluding grants) -7.9 -7.1 -6.1 -7.9 -7.6 -7.8 -7.5 -7.7 -7.3
Primary balance (excluding grants) -3.1 -1.6 -1.2 -3.1 -1.0 -0.8 0.4 0.4 0.4
Underlying primary balance (excluding grants) 3/ -3.1 -1.6 -0.5 -2.3 -0.8 -0.6 0.4 0.4 0.4
Total general government debt excl. IMF obligations 75.4 76.8 71.4 74.1 74.9 74.7 68.4 70.3 69.1
External general government debt 28.1 27.9 24.4 27.4 31.1 28.5 28.4 27.4 26.1
Domestic general government debt 47.3 49.0 47.0 46.6 43.8 46.2 40.0 42.9 43.0
General government debt incl. IMF obligations 77.5 79.6 73.5 76.2 77.4 77.1 70.9 72.8 71.0
External general government debt 30.2 30.6 26.5 29.5 33.5 30.9 30.9 30.0 28.0
Domestic general government debt 47.3 49.0 47.0 46.6 43.8 46.2 40.0 42.9 43.0
General government and government guaranteed debt (incl. IMF; % GDP) 82.0 84.5 77.8 80.7 81.8 81.3 74.9 76.8 74.7
Monetary sector (Annual changes in percent of initial stock of broad money, unless otherwise indicated)
Net foreign assets -8.1 5.6 5.9 -6.1 -3.3 -7.0 -0.4 1.1 4.4
Net domestic assets 19.4 11.9 10.3 19.7 18.4 21.2 12.9 9.9 16.6
Credit to the private sector 4.5 1.1 3.8 5.5 0.3 0.8 2.4 1.5 5.6
Net claims on the government 13.4 12.4 8.2 13.8 14.2 13.5 14.5 17.8 14.8
Broad money (percent change) 11.3 17.5 16.2 13.6 13.3 14.2 14.5 11.0 21.0
Reserve money (percent change) 19.9 16.8 12.8 7.7 17.5 22.4 17.5 11.0 21.9
Private credit (percent change) 11.9 3.0 11.5 17.4 1.0 2.3 8.0 5.0 20.0
Six-month treasury bill rate (period average, in percent) 10.2 11.9 7.3 11.0 … 18.3 … … …
External sector (Annual percentage change, unless otherwise indicated)
Merchandise exports, U.S. dollars -2.1 -7.1 13.8 26.7 -13.6 -14.2 9.9 8.8 6.7
Merchandise imports, U.S. dollars -6.8 -15.9 24.4 31.8 -25.2 -27.5 19.9 12.4 8.2
Current account balance (in percent of GDP) -4.2 -1.5 -0.8 -4.7 -1.2 -0.7 -1.8 -1.6 -1.5
Financial account (billions of U.S. dollars) 11.8 6.5 8.3 10.2 -2.5 -2.5 9.7 9.3 10.9
(Percent of exports of goods and services, unless otherwise indicated)
External public and publicly guaranteed debt 277.2 312.6 301.5 245.4 276.0 258.9 267.5 258.9 253.4
Debt service 40.8 51.5 34.1 37.5 57.6 57.8 41.0 40.0 39.6
Gross reserves (in millions of U.S. dollars) 4/ 7,274 12,175 17,297 9,821 4,056 4,455 8,982 9,101 13,006
In months of next year’s imports of goods and services 1.7 2.3 2.5 2.0 0.7 0.8 1.4 1.5 2.0
Memorandum items:
Underlying fiscal balance (excl. grants; % GDP) 3/ -7.9 -7.1 -5.5 -7.1 -7.4 -7.5 -7.4 -7.5 -7.7
Net general government debt (incl. IMF; % GDP) 70.2 72.9 66.0 69.9 72.4 72.1 67.1 68.9 67.6
Real effective exchange rate (annual average, percentage change) -11.5 -4.0 2.0 -1.2 … -5.9 … … …
Real effective exchange rate (end of period percentage change) -15.2 3.5 7.2 -5.9 … -8.0 … … …
Terms of trade (percentage change) -1.7 2.3 2.1 -1.2 -1.7 -1.3 -6.9 -5.8 -0.2
Real per capita GDP (percentage change) 1.1 -2.9 3.7 4.1 -2.4 -2.1 0.5 0.0 1.5
GDP at market prices (in billions of Pakistani rupees) 43,798 47,540 55,836 66,640 84,665 84,069 108,910 106,577 123,604
Per capita GDP (in U.S. dollars) 1,485.8 1,362.9 1,550.1 1,634.4 … 1,446.3 … … …
Population (millions) 214.0 218.2 222.6 227.0 231.6 231.6 236.2 236.2 240.9
GDP at market prices (in billions of U.S. dollars) 321.1 300.4 348.5 374.7 … 338.2 … … …
!2

!1
Table 2. Pakistan: Medium-Term Macroeconomic Framework, 2019/20­2027/28 1/
2019/20 2020/21 2021/22 2022/23 2023/24 2024/25 2025/26 2026/27 2027/28
Prog. Est. Prog. Proj. Proj.
(Annual percentage change, unless otherwise indicated)
Output and prices
Real GDP at factor cost -0.9 5.8 6.2 -0.5 -0.2 2.5 2.0 3.5 4.5 5.0 5.0
Net exports (percent contribution to real GDP at factor cost) 1.2 -2.2 -1.8 4.5 5.8 -0.8 -0.9 -0.8 -0.5 -0.5 -0.5
GDP deflator at factor cost 9.9 10.4 14.1 26.0 26.1 25.9 24.0 11.7 7.7 6.6 6.6
Consumer prices (period average) 10.7 8.9 12.1 29.6 29.2 25.9 24.0 11.7 7.7 6.6 6.6
(Percent of GDP)
Saving and investment balance -1.5 -0.8 -4.7 -1.2 -0.7 -1.8 -1.6 -1.5 -1.5 -1.5 -1.6
Government -7.0 -6.0 -7.8 -7.6 -7.7 -7.5 -7.6 -7.3 -5.8 -5.1 -4.7
Nongovernment (including public sector enterprises) 5.6 5.2 3.2 6.4 7.1 5.7 6.0 5.8 4.3 3.6 3.1
Gross national saving 13.3 13.7 10.7 12.4 13.0 12.8 12.0 12.3 13.0 13.2 13.1
Government -4.7 -3.9 -5.4 -5.5 -5.5 -5.4 -5.7 -5.2 -3.7 -3.0 -2.5
Nongovernment (including public sector enterprises) 18.1 17.6 16.1 17.9 18.5 18.2 17.7 17.4 16.7 16.2 15.6
Gross capital formation 14.8 14.5 15.4 13.5 13.7 14.7 13.6 13.8 14.5 14.7 14.7
Government 2.3 2.2 2.4 2.0 2.2 2.1 2.0 2.1 2.1 2.1 2.1
Nongovernment (including public sector enterprises) 12.5 12.4 13.0 11.5 11.5 12.6 11.6 11.7 12.4 12.6 12.5
(Billions of U.S. dollars, unless otherwise indicated)
Balance of payments
Current account balance -4.4 -2.8 -17.5 -4.0 -2.2 -6.4 -5.6 -5.6 -6.0 -6.5 -7.3
Current account balance (in percent of GDP) -1.5 -0.8 -4.7 -1.2 -0.7 -1.8 -1.6 -1.5 -1.5 -1.5 -1.6
Net capital flows 2/ 6.9 7.9 10.1 -2.0 -3.1 10.0 9.0 11.0 10.4 10.6 11.0
Of which: foreign direct investment 3/ 2.7 1.6 1.7 0.0 0.6 0.2 0.7 1.3 1.5 1.9 2.4
Gross reserves 12.2 17.3 9.8 4.1 4.5 9.0 9.1 13.0 16.9 19.7 21.2
In months of imports 4/ 2.3 2.5 2.0 0.7 0.8 1.4 1.5 2.0 2.4 2.7 2.7
External debt (in percent of GDP) 37.6 35.1 32.2 36.4 34.4 37.3 34.9 35.0 34.2 32.9 31.3
Terms of trade (annual percentage change) 2.3 2.1 -1.2 -1.7 -1.3 -6.9 -5.8 -0.2 -0.4 0.3 0.4
Real effective exchange rate (annual average, percentage change) -4.0 2.0 -1.2 … -5.9 … … … … … …
Real effective exchange rate (end of period, percentage change) 3.5 7.2 -5.9 … -8.0 … … … … … …
(Percent of GDP)
Public finances
Revenue and grants 13.3 12.4 12.1 11.4 11.4 12.3 12.5 12.4 12.4 12.4 12.4
Of which: tax revenue 10.0 10.3 10.4 10.0 10.0 10.3 10.6 10.7 10.7 10.7 10.7
Expenditure (including statistical discrepancy) 20.3 18.5 20.0 18.9 19.2 19.8 20.2 19.7 18.2 17.5 17.0
Of which: current 18.1 16.3 17.3 16.9 17.3 17.7 18.0 17.5 16.0 15.3 14.9
Of which: development 2.3 2.2 2.4 2.0 2.2 2.1 2.0 2.1 2.1 2.1 2.1
Primary balance (including grants) -1.5 -1.1 -3.0 -1.0 -0.8 0.4 0.4 0.5 0.4 0.4 0.4
Primary balance (excluding grants) -1.6 -1.2 -3.1 -1.0 -0.8 0.4 0.4 0.4 0.4 0.4 0.4
Underlying primary balance (excluding grants) 5/ -1.6 -0.5 -2.3 -0.8 -0.6 0.4 0.4 0.4 0.4 0.4 0.4
Budget balance (including grants) -7.0 -6.0 -7.8 -7.6 -7.7 -7.5 -7.6 -7.3 -5.8 -5.1 -4.7
Budget balance (excluding grants) -7.1 -6.1 -7.9 -7.6 -7.8 -7.5 -7.7 -7.3 -5.8 -5.1 -4.7
Underlying fiscal balance (excl. grants) 5/ -7.1 -5.5 -7.1 -7.4 -7.5 -7.5 -7.7 -7.3 -5.8 -5.1 -4.7
General government and government guaranteed debt (incl. IMF) 84.5 77.8 80.7 81.8 81.3 74.9 76.8 74.7 73.2 71.0 68.8
General government debt (incl. IMF) 79.6 73.5 76.2 77.4 77.1 70.9 72.8 71.0 69.8 67.8 65.8
Net general government debt (incl. IMF) 72.9 66.0 69.9 72.4 72.1 67.1 68.9 67.6 66.8 65.1 63.4
Memorandum item:
Nominal GDP (market prices, billions of Pakistani rupees) 47,540 55,836 66,640 84,665 84,069 108,910 106,577 123,604 139,261 155,690 174,225
!2

!1
Table 3a. Pakistan: Balance of Payments, 2018/19­2027/28
(In millions of U.S. dollars, unless otherwise indicated)
2018/19 2019/20 2020/21 2021/22 2022/23 2023/24 2024/25 2025/26 2026/27 2027/28
Prog. Est. Prog. Proj. Proj.
Current account -13,434 -4,449 -2,820 -17,481 -4,020 -2,235 -6,424 -5,649 -5,617 -5,952 -6,499 -7,323
Balance on goods -27,612 -21,109 -28,634 -39,050 -25,889 -23,955 -33,857 -27,934 -30,669 -31,864 -33,239 -35,009
Exports, f.o.b. 24,257 22,536 25,639 32,493 28,062 27,879 30,843 30,327 32,356 34,689 37,254 39,461
Imports, f.o.b. 51,869 43,645 54,273 71,543 53,951 51,834 64,700 58,262 63,025 66,553 70,492 74,470
Services (net) -4,970 -3,316 -2,516 -5,840 -445 -969 -1,566 -1,771 -2,037 -2,570 -3,096 -3,724
Services: credit 5,966 5,437 5,945 7,102 7,430 7,599 7,876 7,985 8,499 9,057 9,634 10,235
Of which: Coalition Support Fund 0 0 0 0 0 0 0 0 0 0 0 0
Services: debit 10,936 8,753 8,461 12,942 7,875 8,568 9,442 9,755 10,535 11,626 12,729 13,959
Income (net) -5,610 -5,459 -4,400 -5,248 -5,596 -5,671 -5,445 -6,537 -5,562 -6,399 -7,076 -7,617
Income: credit 578 479 508 652 917 652 1,058 1,061 1,056 815 746 734
Income: debit 6,188 5,938 4,908 5,900 6,513 6,323 6,503 7,599 6,618 7,214 7,822 8,351
Of which: interest payments 3,683 3,540 2,594 3,375 4,834 4,901 4,675 5,396 5,302 5,750 6,098 6,314
Of which: income on direct investment 2,848 2,664 2,565 2,717 1,656 1,646 1,828 2,193 1,316 1,464 1,724 2,037
Balance on goods, services, and income -38,192 -29,884 -35,550 -50,138 -31,930 -30,595 -40,868 -36,242 -38,268 -40,833 -43,411 -46,350
Current transfers (net) 24,758 25,435 32,730 32,657 27,910 28,360 34,444 30,594 32,652 34,881 36,911 39,027
Current transfers: credit, of which: 24,990 25,802 33,027 32,949 28,215 28,674 34,741 30,954 33,002 35,228 37,261 39,375
Official 761 468 281 376 362 380 400 409 393 393 393 393
Workers’ remittances 21,740 23,131 29,450 31,279 27,051 27,333 32,889 29,470 31,172 33,039 34,643 36,233
Other private transfers 2,489 2,203 3,296 1,294 802 961 1,452 1,075 1,437 1,796 2,224 2,749
Current transfers: debit 232 367 297 292 305 314 297 361 351 347 349 348
Capital account 229 285 224 205 399 375 300 221 157 100 100 100
Capital transfers: credit 229 288 224 205 399 375 300 221 157 100 100 100
Of which: official capital grants 219 273 204 190 170 144 300 215 157 100 100 100
Capital transfers: debit 0 3 0 0 0 0 0 0 0 0 0 0
Financial account 11,759 6,479 8,268 10,207 -2,459 -2,487 9,690 9,296 10,889 10,316 10,495 10,871
Direct investment abroad 74 54 -171 -234 -1,343 -957 -672 -367 0 0 0 0
Direct investment in Pakistan 1,362 2,598 1,819 1,936 1,337 1,547 845 1,056 1,269 1,530 1,919 2,390
Portfolio investment (net) -1,274 -409 2,774 -55 -1,009 -1,012 320 344 3,312 4,012 5,812 5,212
Financial derivatives (net) 0 8 0 0 0 0 0 0 0 0 0 0
Other investment assets 67 127 -1,345 -2,613 676 1,029 -731 -184 -640 -480 -320 0
Monetary authorities 0 0 0 0 0 0 0 0 0 0 0 0
General government -48 -48 -15 -914 898 883 0 0 0 0 0 0
Banks 92 -140 -608 -382 -428 -218 -313 261 -320 -240 -160 0
Other sectors 23 315 -722 -1,317 206 364 -419 -445 -320 -240 -160 0
Other investment liabilities 11,530 4,101 5,191 11,173 -2,121 -3,094 9,928 8,448 6,948 5,254 3,084 3,269
Monetary authorities 5,495 -498 -1,468 -1 0 0 1,200 999 0 0 0 0
General government, of which: 4,294 3,085 5,238 5,064 -2,310 -3,245 7,758 5,952 4,807 3,283 741 -652
Disbursements 8,255 10,347 9,308 10,203 9,700 8,731 14,686 12,168 13,199 12,472 10,545 11,979
Amortization 5,982 7,299 5,855 8,343 11,719 11,660 6,928 6,209 8,392 9,190 9,804 12,631
Banks 467 -124 499 846 1,061 1,241 250 77 250 350 450 500
Other sectors 1,274 1,638 922 2,491 -872 -1,090 720 1,421 1,891 1,621 1,893 3,421
Net errors and omissions -58 150 -619 -303 76 -1,046 0 -503 0 0 0 0
Overall balance -1,631 2,465 5,053 -7,371 -5,993 -5,384 3,567 3,363 5,430 4,463 4,095 3,648
Financing 1,504 -2,465 -5,053 7,371 5,993 5,384 -3,567 -3,363 -5,430 -4,463 -4,095 -3,648
Change in reserve assets (- denotes accumulation) 1,880 -4,554 -4,473 7,333 5,796 5,185 -4,926 -4,728 -3,906 -3,895 -2,830 -1,451
Net use of Fund credit and loans (without augmentation) -376 2,089 -580 38 197 199 1,359 1,365 -1,524 -568 -1,265 -2,196
Memorandum items:
Current account (in percent of GDP) -4.2 -1.5 -0.8 -4.7 -1.2 -0.7 -1.8 -1.6 -1.5 -1.5 -1.5 -1.6
Current account (in percent of GDP; excluding fuel imports) 0.2 1.6 2.0 0.3 3.7 4.5 2.6 3.4 3.3 3.0 2.6 2.3
Exports f.o.b. (growth rate, in percent) -2.1 -7.1 13.8 26.7 -13.6 -14.2 9.9 8.8 6.7 7.2 7.4 5.9
Exports volume (growth rate, in percent) -1.7 -1.0 2.8 4.6 -6.9 -11.8 19.7 20.2 7.0 6.7 6.4 5.5
Remittance (growth rate, in percent) 9.2 6.4 27.3 6.2 -13.5 -12.6 21.6 7.8 5.8 6.0 4.9 4.6
Remittances (in percent of GDP) 6.8 7.7 8.5 8.3 8.0 8.1 9.4 8.4 8.3 8.2 7.9 7.7
Imports f.o.b. (growth rate, in percent) -6.8 -15.9 24.4 31.8 -25.2 -27.5 19.9 12.4 8.2 5.6 5.9 5.6
Imports volume (growth rate, in percent) -9.8 -12.0 20.2 10.9 -21.2 -29.2 15.1 15.9 8.1 5.8 6.1 5.5
Oil imports (in million US$, cif) 13,929 9,280 9,747 18,743 16,522 17,539 15,381 17,630 17,991 17,933 18,063 18,268
Terms of trade (growth rate, in percent) -1.7 2.3 2.1 -1.2 -1.7 -1.3 -6.9 -5.8 -0.2 -0.4 0.3 0.4
Foreign Direct Investment (in percent of GDP) 0.4 0.9 0.5 0.5 0.4 0.5 0.2 0.3 0.3 0.4 0.4 0.5
External debt (in millions of U.S. dollars) 106,705 113,013 122,292 120,534 123,574 116,217 130,851 122,903 130,511 138,258 143,756 147,691
o/w external public debt 82,561 86,522 93,806 96,073 96,937 90,974 102,556 98,302 02,628 107,569 110,051 109,220
Gross external financing needs (in millions of U.S. dollars) 1/ 25,552 23,430 22,206 33,736 25,593 22,819 28,361 24,965 22,245 24,678 24,924 31,189
End-period gross official reserves (millions of U.S. dollars) 2/ 7,274 12,175 17,297 9,821 4,056 4,455 8,982 9,101 13,006 16,901 19,731 21,182
(In months of next year’s imports of goods and services) 1.7 2.3 2.5 2.0 0.7 0.8 1.4 1.5 2.0 2.4 2.7 2.7
GDP (in millions of U.S. dollars) 321,071 300,410 348,481 374,748 … 338,237 … … … … … …
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Table 3b. Pakistan: Gross Financing Requirements and Sources, 2018/19­2027/28
(In millions of U.S. dollars, unless otherwise indicated)
2018/19 2019/20 2020/21 2021/22 2022/23 2023/24 2024/25 2025/26 2026/27 2027/28 2028/29
Prog. Est. Prog. Proj. Proj.
Gross External Financing Requirements (A) 25,552 23,430 22,206 33,736 25,593 22,819 28,361 24,965 22,245 24,678 24,924 31,189 29,919
(In percent of GDP) 8.0 7.8 6.4 9.0 7.5 6.7 8.1 7.1 6.0 6.1 5.7 6.6 5.9
Current account deficit 13,434 4,449 2,820 17,481 4,020 2,235 6,424 5,649 5,617 5,952 6,499 7,323 8,379
(In percent of GDP) 4.2 1.5 0.8 4.7 1.2 0.7 1.8 1.6 1.5 1.5 1.5 1.6 1.6
Amortization 11,742 18,236 18,306 15,240 20,604 19,617 20,278 17,675 15,104 18,158 17,159 21,670 20,024
Public Sector 6,982 12,799 13,943 11,343 15,010 14,971 14,499 13,780 11,392 13,990 12,804 17,131 15,273
Short-term Borrowing 1,538 1,182 784 532 1,658 1,327 1,461 1,211 2,494 3,426 4,492 4,492 4,492
Long-term Borrowing (non-IMF) 4,444 10,617 13,159 9,811 12,061 12,333 12,038 11,569 8,898 8,764 8,312 11,139 9,781
Bonds 1,000 1,000 0 1,000 1,291 1,311 1,000 1,000 0 1,800 0 1,500 1,000
Private Sector 1/ 4,760 5,437 4,363 3,897 5,594 4,646 5,779 3,895 3,713 4,168 4,354 4,539 4,751
Short-term Borrowing 3,474 3,610 3,110 2,786 3,966 2,983 4,151 2,812 2,760 2,781 2,967 3,152 3,364
Long-term Borrowing 1,286 1,827 1,253 1,111 1,628 1,663 1,628 1,083 953 1,387 1,387 1,387 1,387
IMF Repurchases 376 745 1,080 1,015 969 967 1,659 1,641 1,524 568 1,265 2,196 1,516
Available Financing (B) 21,103 24,890 26,826 25,208 18,662 16,282 30,269 26,583 26,126 28,742 27,907 32,813 32,667
Foreign Direct Investment (net) 2/ 1,436 2,652 1,648 1,702 -6 590 173 689 1,269 1,530 1,919 2,390 2,924
Disbursement 19,496 21,811 25,573 20,839 18,193 16,363 29,795 26,176 24,700 27,113 25,889 30,323 29,643
From private creditors 8,366 14,822 11,932 10,762 9,386 7,271 9,663 6,659 15,001 16,946 16,875 21,375 20,695
Disbursement to Private Sector 3/ 4,268 11,445 4,645 3,713 5,886 5,065 7,338 4,381 7,501 7,640 9,344 11,844 12,164
Disbursement to Public Sector 4/ 4,098 3,377 7,287 7,049 3,500 2,206 2,325 2,278 7,500 9,306 7,531 9,531 8,531
From official creditors (non-IMF) 11,130 6,989 13,640 10,077 8,807 9,092 20,132 19,517 9,699 10,166 9,014 8,948 8,948
o/w Project Loans 2,673 1,799 1,933 1,899 2,812 1,899 4,600 3,721 2,673 2,745 1,821 1,755 1,755
o/w China 1,574 487 204 162 63 128 135 9 132 49 47 41 0
o/w Program Loans 288 3,666 2,120 1,514 2,857 2,341 2,500 3,000 3,100 2,460 2,232 2,232 2,232
o/w Short-term debt (incl. rollovers) 3,694 10,170 6,772 7,427 5,675 4,497 8,512 4,426 6,207 8,092 8,092 8,272 8,272
o/w Public Sector 1,643 2,774 2,954 4,444 1,537 1,517 4,011 2,494 3,426 4,492 4,492 4,492 4,492
o/w Private Sector 2,051 7,397 3,817 2,983 4,137 2,981 4,501 1,932 2,781 3,600 3,600 3,780 3,780
Other Net Capital Inflows (net) 5/ 171 427 -395 -98 475 -671 300 -282 157 100 100 100 100
IMF SDR allocation 0 0 0 2,765 0 0 0 0 0 0 0 0 0
Remaining Financing Needs (C=A-B) 4,449 -1,459 -4,620 8,528 6,931 6,537 -1,907 -1,618 -3,881 -4,064 -2,984 -1,624 -2,748
Borrowing from IMF (D) 0 2,834 500 1,053 1,166 1,166 3,019 3,006 0 0 0 0 0
Reserve Assets (decrease = +) (E=C-D) 4,449 -4,293 -5,120 7,475 5,765 5,371 -4,926 -4,624 -3,881 -4,064 -2,984 -1,624 -2,748
Memorandum items:
Gross official reserves (stock, in US$ billions) 7.3 12.2 17.3 9.8 4.1 4.5 9.0 9.1 13.0 16.9 19.7 21.2 24.0
(In months of prospective imports) 1.7 2.3 2.5 2.0 0.7 0.8 1.4 1.5 2.0 2.4 2.7 2.7 2.9
(In percent of IMF ARA metric: assuming fixed ER) 32.3 34.8 45.5 26.4 11.2 12.9 24.6 26.6 35.4 43.4 47.9 48.5 53.5
(In percent of IMF ARA metric: assuming flexible ER) 34.5 54.2 72.6 41.3 16.7 19.6 36.9 41.4 54.4 66.6 73.4 73.5 82.1
Net FX derivative position (in US$ billions) 8.1 5.8 4.9 4.0 4.0 4.5 4.0 4.0 4.0 4.0 4.0 4.0 4.0
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Table 4a. Pakistan: General Government Budget, 2018/19­2027/28
(In billions of Pakistani rupees)
2018/19 2019/20 2020/21 2021/22 2022/23 2023/24 2024/25 2025/26 2026/27 2027/28
Prog. Est. Prog. Proj. Proj.
Revenue and grants 4,934 6,306 6,933 8,076 9,637 9,621 13,426 13,366 15,344 17,271 19,286 21,567
Revenue 4,901 6,273 6,903 8,035 9,602 9,586 13,377 13,317 15,282 17,226 19,240 21,520
Tax revenue 4,473 4,748 5,755 6,943 8,456 8,396 11,261 11,298 13,188 14,867 16,601 18,567
Federal 4,072 4,334 5,247 6,331 7,789 7,752 10,393 10,430 12,181 13,732 15,333 17,149
FBR revenue 3,829 3,998 4,764 6,142 7,200 7,133 9,415 9,415 11,005 12,407 13,852 15,490
Direct taxes 1,446 1,524 1,732 2,280 3,271 3,250 3,884 4,216 4,803 5,402 6,039 6,798
Federal excise duty 234 250 277 321 414 367 600 571 677 763 858 960
Sales tax/VAT 1,465 1,597 1,990 2,532 2,566 2,581 3,607 3,425 4,114 4,654 5,182 5,771
Customs duties 685 626 765 1,009 949 935 1,324 1,204 1,410 1,589 1,773 1,962
Petroleum surcharge 206 294 424 128 542 580 869 918 1,065 1,200 1,341 1,501
Gas surcharge and other 14 33 39 42 38 28 69 66 77 87 97 108
GIDC 21 9 19 19 9 11 40 30 35 39 44 49
Provincial 402 414 508 612 667 644 868 868 1,007 1,134 1,268 1,419
Nontax revenue 427 1,524 1,147 1,092 1,146 1,190 2,116 2,019 2,094 2,360 2,638 2,952
Federal 341 1,422 997 964 989 1,025 1,908 1,811 1,854 2,089 2,335 2,613
Provincial 86 102 150 128 157 165 208 208 241 271 303 339
Grants 33 33 31 41 35 35 49 49 62 45 46 48
Expenditure (including statistical discrepancy) 8,345 9,649 10,306 13,301 16,041 16,110 21,590 21,518 24,359 25,328 27,226 29,675
Current expenditure 7,274 8,597 9,111 11,535 14,284 14,553 19,236 19,146 21,671 22,285 23,824 25,878
Federal 4,946 6,081 6,292 8,369 10,420 10,785 14,641 14,555 16,347 16,286 17,118 18,373
Interest 2,091 2,620 2,750 3,197 5,568 5,832 8,614 8,602 9,586 8,669 8,602 8,844
Domestic 1,821 2,313 2,524 2,829 4,855 5,046 7,753 7,489 8,398 7,304 7,195 7,316
Foreign 270 302 226 354 707 714 822 996 1,073 1,264 1,407 1,528
IMF budget support 0 5 0 14 5 72 39 116 115 101 0 0
Other 2,855 3,466 3,542 5,186 4,858 5,025 6,066 6,069 6,876 7,718 8,516 9,529
Defense 1,147 1,213 1,316 1,412 1,510 1,573 1,804 1,804 2,093 2,358 2,636 2,950
Other 1,708 2,253 2,226 3,774 3,348 3,452 4,262 4,265 4,783 5,361 5,880 6,580
Of which : subsidies 195 360 425 1,530 1,128 1,104 1,396 1,396 1,496 1,685 1,884 2,108
Of which : grants 612 917 855 1,142 1,008 981 1,312 1,312 1,522 1,715 1,917 2,145
Provincial 2,328 2,516 2,819 3,167 3,864 3,769 4,595 4,591 5,324 5,998 6,706 7,504
Development expenditure and net lending 1,049 1,139 1,288 1,649 1,757 1,938 2,354 2,179 2,688 3,043 3,402 3,797
Public Sector Development Program 1,008 1,090 1,211 1,609 1,734 1,879 2,283 2,108 2,605 2,950 3,298 3,681
Federal 502 468 441 397 485 648 843 782 869 994 1,111 1,233
Provincial 506 622 770 1,212 1,249 1,230 1,440 1,325 1,736 1,956 2,187 2,447
Net lending 41 49 77 40 23 60 71 71 83 93 104 117
Statistical discrepancy (“+” = additional expenditure) 22 -87 -93 116 0 -381 0 194 0 0 0 0
Overall Balance (excluding grants) -3,445 -3,376 -3,404 -5,266 -6,439 -6,524 -8,213 -8,201 -9,077 -8,102 -7,987 -8,155
Overall Balance (including grants) -3,412 -3,343 -3,373 -5,224 -6,404 -6,490 -8,164 -8,152 -9,015 -8,057 -7,941 -8,108
Financing 3,412 3,343 3,373 5,224 6,404 6,490 8,164 8,152 9,015 8,057 7,941 8,108
External 417 896 1,418 677 335 -1,133 1,696 1,256 1,622 1,784 1,127 246
Of which: privatization receipts 0 0 0 0 0 0 0 0 0 0 0 0
Of which: IMF 0 390 80 187 191 191 -199 -197 -301 -107 -207 -251
Domestic 2,995 2,447 1,955 4,548 6,070 7,622 6,468 6,896 7,393 6,273 6,814 7,862
Bank 2,230 1,907 1,746 3,183 4,249 5,335 4,528 4,827 5,175 4,424 4,832 5,579
Nonbank 765 540 209 1,364 1,821 2,287 1,940 2,069 2,218 1,850 1,982 2,283
Memorandum items:
Underlying fiscal balance (excl. grants) 1/ -3,445 -3,376 -3,051 -4,737 -6,259 -6,344 -8,213 -8,201 -9,077 -8,102 -7,987 -8,155
Primary balance (excluding grants) -1,353 -756 -654 -2,069 -872 -692 401 401 509 568 615 688
Underlying primary balance (excluding grants) 1/ -1,353 -756 -301 -1,540 -692 -512 401 401 509 568 615 688
Primary balance (including grants) -1,320 -723 -623 -2,028 -837 -658 450 450 571 612 661 736
Total security spending 1,147 1,213 1,316 1,412 1,510 1,573 1,804 1,804 2,093 2,358 2,636 2,950
General government debt incl. IMF obligations 33,946 37,823 41,044 50,766 65,508 64,828 77,269 77,636 87,719 97,198 105,541 114,687
Domestic debt 20,732 23,283 26,265 31,085 37,106 38,810 43,574 45,706 53,099 59,265 65,872 73,483
External debt 13,214 14,540 14,779 19,680 28,402 26,018 33,696 31,930 34,620 37,933 39,669 41,204
General government and government guaranteed debt (incl. IMF) 35,915 40,167 43,451 53,749 69,278 68,342 81,560 81,896 92,319 101,990 110,505 119,918
Net general government debt (incl. IMF) 30,759 34,659 36,847 46,568 61,311 60,630 73,072 73,438 83,522 93,000 101,344 110,489
Nominal GDP (market prices) 43,798 47,540 55,836 66,640 84,665 84,069 108,910 106,577 123,604 139,261 155,690 174,225
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Table 4b. Pakistan: General Government Budget, 2018/19­2027/28
(In percent of GDP, unless otherwise indicated)
2018/19 2019/20 2020/21 2021/22 2022/23 2023/24 2024/25 2025/26 2026/27 2027/28
Prog. Est. Prog. Proj. Proj.
Revenue and grants 11.3 13.3 12.4 12.1 11.4 11.4 12.3 12.5 12.4 12.4 12.4 12.4
Revenue 11.2 13.2 12.4 12.1 11.3 11.4 12.3 12.5 12.4 12.4 12.4 12.4
Tax revenue 10.2 10.0 10.3 10.4 10.0 10.0 10.3 10.6 10.7 10.7 10.7 10.7
Federal 9.3 9.1 9.4 9.5 9.2 9.2 9.5 9.8 9.9 9.9 9.8 9.8
FBR revenue 8.7 8.4 8.5 9.2 8.5 8.5 8.6 8.8 8.9 8.9 8.9 8.9
Direct taxes 3.3 3.2 3.1 3.4 3.9 3.9 3.6 4.0 3.9 3.9 3.9 3.9
Federal excise duty 0.5 0.5 0.5 0.5 0.5 0.4 0.6 0.5 0.5 0.5 0.6 0.6
Sales tax 3.3 3.4 3.6 3.8 3.0 3.1 3.3 3.2 3.3 3.3 3.3 3.3
Customs duties 1.6 1.3 1.4 1.5 1.1 1.1 1.2 1.1 1.1 1.1 1.1 1.1
Petroleum surcharge 0.5 0.6 0.8 0.2 0.6 0.7 0.8 0.9 0.9 0.9 0.9 0.9
Gas surcharge and other 0.0 0.1 0.1 0.1 0.0 0.0 0.1 0.1 0.1 0.1 0.1 0.1
GIDC 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Provincial 0.9 0.9 0.9 0.9 0.8 0.8 0.8 0.8 0.8 0.8 0.8 0.8
Nontax revenue 1.0 3.2 2.1 1.6 1.4 1.4 1.9 1.9 1.7 1.7 1.7 1.7
Federal 0.8 3.0 1.8 1.4 1.2 1.2 1.8 1.7 1.5 1.5 1.5 1.5
Provincial 0.2 0.2 0.3 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2
Grants 0.1 0.1 0.1 0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Expenditure (including statistical discrepancy) 19.1 20.3 18.5 20.0 18.9 19.2 19.8 20.2 19.7 18.2 17.5 17.0
Current expenditure 16.6 18.1 16.3 17.3 16.9 17.3 17.7 18.0 17.5 16.0 15.3 14.9
Federal 11.3 12.8 11.3 12.6 12.3 12.8 13.4 13.7 13.2 11.7 11.0 10.5
Interest 4.8 5.5 4.9 4.8 6.6 6.9 7.9 8.1 7.8 6.2 5.5 5.1
Domestic 4.2 4.9 4.5 4.2 5.7 6.0 7.1 7.0 6.8 5.2 4.6 4.2
Foreign 0.6 0.6 0.4 0.5 0.8 0.8 0.8 0.9 0.9 0.9 0.9 0.9
IMF budget support 0.0 0.0 0.0 0.0 0.0 0.1 0.0 0.1 0.1 0.1 0.0 0.0
Other 6.5 7.3 6.3 7.8 5.7 6.0 5.6 5.7 5.6 5.5 5.5 5.5
Defense 2.6 2.6 2.4 2.1 1.8 1.9 1.7 1.7 1.7 1.7 1.7 1.7
Other 3.9 4.7 4.0 5.7 4.0 4.1 3.9 4.0 3.9 3.8 3.8 3.8
Of which : subsidies 0.4 0.8 0.8 2.3 1.3 1.3 1.3 1.3 1.2 1.2 1.2 1.2
Of which : grants 1.4 1.9 1.5 1.7 1.2 1.2 1.2 1.2 1.2 1.2 1.2 1.2
Provincial 5.3 5.3 5.0 4.8 4.6 4.5 4.2 4.3 4.3 4.3 4.3 4.3
Development expenditure and net lending 2.4 2.4 2.3 2.5 2.1 2.3 2.2 2.0 2.2 2.2 2.2 2.2
Public Sector Development Program 2.3 2.3 2.2 2.4 2.0 2.2 2.1 2.0 2.1 2.1 2.1 2.1
Federal 1.1 1.0 0.8 0.6 0.6 0.8 0.8 0.7 0.7 0.7 0.7 0.7
Provincial 1.2 1.3 1.4 1.8 1.5 1.5 1.3 1.2 1.4 1.4 1.4 1.4
Net lending 0.1 0.1 0.1 0.1 0.0 0.1 0.1 0.1 0.1 0.1 0.1 0.1
Statistical discrepancy (“+” = additional expenditure) 0.1 -0.2 -0.2 0.2 0.0 -0.5 0.0 0.2 0.0 0.0 0.0 0.0
Overall Balance (excluding grants) -7.9 -7.1 -6.1 -7.9 -7.6 -7.8 -7.5 -7.7 -7.3 -5.8 -5.1 -4.7
Overall Balance (including grants) -7.8 -7.0 -6.0 -7.8 -7.6 -7.7 -7.5 -7.6 -7.3 -5.8 -5.1 -4.7
Financing 7.8 7.0 6.0 7.8 7.6 7.7 7.5 7.6 7.3 5.8 5.1 4.7
External 1.0 1.9 2.5 1.0 0.4 -1.3 1.6 1.2 1.3 1.3 0.7 0.1
Of which: privatization receipts 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Of which: IMF 0.0 0.8 0.1 0.3 0.2 0.2 -0.2 -0.2 -0.2 -0.1 -0.1 -0.1
Domestic 6.8 5.1 3.5 6.8 7.2 9.1 5.9 6.5 6.0 4.5 4.4 4.5
Bank 5.1 4.0 3.1 4.8 5.0 6.3 4.2 4.5 4.2 3.2 3.1 3.2
Nonbank 1.7 1.1 0.4 2.0 2.2 2.7 1.8 1.9 1.8 1.3 1.3 1.3
Memorandum items:
Underlying fiscal balance (excl. grants) 1/ -7.9 -7.1 -5.5 -7.1 -7.4 -7.5 -7.5 -7.7 -7.3 -5.8 -5.1 -4.7
Primary balance (excluding grants) -3.1 -1.6 -1.2 -3.1 -1.0 -0.8 0.4 0.4 0.4 0.4 0.4 0.4
Underlying primary balance (excluding grants) 1/ -3.1 -1.6 -0.5 -2.3 -0.8 -0.6 0.4 0.4 0.4 0.4 0.4 0.4
Primary balance (including grants) -3.0 -1.5 -1.1 -3.0 -1.0 -0.8 0.4 0.4 0.5 0.4 0.4 0.4
Total security spending 2.6 2.6 2.4 2.1 1.8 1.9 1.7 1.7 1.7 1.7 1.7 1.7
General government debt incl. IMF obligations 77.5 79.6 73.5 76.2 77.4 77.1 70.9 72.8 71.0 69.8 67.8 65.8
Domestic debt 47.3 49.0 47.0 46.6 43.8 46.2 40.0 42.9 43.0 42.6 42.3 42.2
External debt 30.2 30.6 26.5 29.5 33.5 30.9 30.9 30.0 28.0 27.2 25.5 23.6
General government and government guaranteed debt (incl. IMF) 82.0 84.5 77.8 80.7 81.8 81.3 74.9 76.8 74.7 73.2 71.0 68.8
Net general government debt (incl. IMF) 70.2 72.9 66.0 69.9 72.4 72.1 67.1 68.9 67.6 66.8 65.1 63.4
Nominal GDP (market prices, billions of Pakistani rupees) 43,798 47,540 55,836 66,640 84,665 84,069 108,910 106,577 123,604 139,261 155,690 174,225
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Table 5. Pakistan: Monetary Survey, 2018/19­2023/24
2018/19 2019/20 2020/21 2021/22 2022/23 2023/24
Q1 Q2 Q3 Q4
Prog. Est. Est. Proj. Proj. Prog. Proj.
(Billions of Pakistani rupees, unless otherwise indicated)
Monetary survey
Net foreign assets (NFA) -1,507 -516 725 -753 -2,168 -2,688 -2,436 -2,402 -2,518 -1,652 -2,328
Net domestic assets (NDA) 19,306 21,424 23,573 28,356 33,441 34,211 33,961 34,117 35,077 37,461 37,318
Net claims on government, of which: 12,337 14,547 16,265 19,623 23,537 23,351 24,566 25,236 26,785 28,064 28,963
Budget support, of which: 11,546 13,471 15,248 18,331 22,405 21,863 22,938 24,036 25,685 26,932 27,463
Banks 4,857 7,016 9,974 13,294 17,387 16,923 18,558 19,657 21,305 22,225 23,083
Commodity operations 756 813 904 1,134 1,132 1,486 1,309 1,200 1,100 1,132 1,500
Credit to nongovernment 8,073 8,372 9,114 10,413 10,924 10,916 10,732 11,338 11,367 11,828 11,491
Private sector 1/ 6,703 6,906 7,702 9,044 9,418 9,253 9,058 9,631 9,626 10,171 9,715
Public sector enterprises 1,370 1,466 1,413 1,369 1,506 1,663 1,674 1,707 1,742 1,657 1,776
Privatization account -41 -41 -41 -41 -41 -41 -41 -41 -41 -41 -41
Other items, net -1,063 -1,455 -1,766 -1,640 -979 -16 -1,296 -2,417 -3,034 -2,391 -3,096
Broad money 17,798 20,908 24,298 27,603 31,274 31,523 31,525 31,715 32,559 35,808 34,990
Currency outside scheduled banks 4,950 6,142 6,910 7,572 8,908 9,149 8,288 8,338 8,979 10,285 9,649
Rupee deposits 11,739 13,691 16,342 18,817 20,834 20,847 21,698 21,790 21,895 23,806 23,603
Foreign currency deposits 1,110 1,075 1,046 1,213 1,532 1,527 1,539 1,587 1,685 1,717 1,737
State Bank of Pakistan (SBP)
NFA -1,127 -181 931 -560 -1,974 -2,013 -1,642 -1,608 -1,724 -1,459 -1,534
NDA 7,701 7,861 7,733 9,886 12,933 13,433 12,101 12,216 13,192 14,335 14,210
Net claims on government 6,676 6,524 5,320 5,124 5,533 5,233 4,954 4,954 4,954 5,223 4,954
Of which: budget support 6,689 6,455 5,274 5,037 5,018 4,940 4,380 4,380 4,380 4,708 4,380
Claims on nongovernment 12 19 49 61 63 62 61 61 61 63 61
Claims on scheduled banks 683 877 1,265 1,603 1,468 1,542 1,491 1,491 1,491 1,468 1,491
Privatization account -41 -41 -41 -41 -41 -41 -41 -41 -41 -41 -41
Other items, net 371 482 1,140 3,139 5,910 6,637 5,635 5,751 6,726 7,622 7,744
Reserve money, of which: 6,573 7,680 8,663 9,327 10,959 11,420 10,459 10,608 11,468 12,876 12,676
Banks’ reserves 1,246 1,171 1,307 1,229 1,391 1,634 1,613 1,636 1,768 1,634 1,954
Currency 5,294 6,468 7,288 8,002 9,568 9,674 8,742 8,972 9,700 11,242 10,721
(Annual percentage change, unless otherwise indicated)
Broad money 11.3 17.5 16.2 13.6 13.3 14.2 12.9 13.5 13.0 14.5 11.0
NFA, banking system (in percent of broad money) 2/ -8.1 5.6 5.9 -6.1 -5.1 -7.0 -4.0 -1.8 1.1 1.6 1.1
NDA, banking system (in percent of broad money) 2/ 19.4 11.9 10.3 19.7 18.4 21.2 16.9 15.3 11.9 12.9 9.9
Budgetary support (in percent of broad money) 2/ 14.1 10.8 8.5 12.7 14.8 12.8 15.4 19.0 18.7 14.5 17.8
Budgetary support 24.4 16.7 13.2 20.2 22.2 19.3 23.1 28.4 26.5 20.2 25.6
Private credit 1/ 11.9 3.0 11.5 17.4 1.0 2.3 -1.0 0.0 3.0 8.0 5.0
Currency 12.8 24.1 12.5 9.6 17.6 20.8 8.3 8.5 8.6 15.5 5.5
Reserve money 19.9 16.8 12.8 7.7 17.5 22.4 12.5 14.0 13.0 17.5 11.0
Memorandum items:
Velocity 2.6 2.5 2.5 2.6 2.9 2.9 3.0 3.1 3.2 3.3 3.3
Money multiplier 2.7 2.7 2.8 3.0 2.9 2.8 3.0 3.0 2.8 2.8 2.8
Currency to broad money ratio (percent) 27.8 29.4 28.4 27.4 28.5 29.0 26.3 26.3 27.6 28.7 27.6
Currency to deposit ratio (percent) 38.5 41.6 39.7 37.8 39.8 40.9 35.7 35.7 38.1 40.3 38.1
Foreign currency to deposit ratio (percent) 8.6 7.3 6.0 6.1 6.8 6.8 6.6 6.8 7.1 6.7 6.9
Reserves to deposit ratio (percent) 9.7 7.9 7.5 6.1 6.2 7.3 6.9 7.0 7.5 6.4 7.7
Budget bank financing (change from the beginning of the fiscal year; in PRs
billions), of which: 2,262 1,925 1,777 3,083 4,074 3,532 1,075 2,173 3,822 4,527 5,600
By commercial banks -887 2,159 2,958 3,320 4,094 3,629 1,635 2,734 4,382 4,837 6,161
By SBP 3/ 3,150 -234 -1,181 -237 -19 -97 -561 -561 -561 -310 -561
NFA of SBP (change from beginning of the year; in billions of U.S. dollars) 4/ -9.4 8.1 6.7 -9.1 -6.1 -6.3 2.6 2.7 3.8 4.7 4.5
NFA of commercial banks (millions of U.S. dollars) -3,127 -2,092 -1,225 -1,227 -944 -3,292 -3,475 -3,506 -2,797 -660 -2,776
NDA of commercial banks (billions of Pakistani rupees) 11,605 13,563 15,840 18,469 20,508 20,778 21,860 21,901 21,885 23,125 23,108
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Table 6. Pakistan: Financial Indicators for the Banking System, 2013­22
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
Dec. Dec. Dec. Dec. Dec. Dec. Dec. Dec. Dec. Dec. Sep.
Capital adequacy
Regulatory capital to risk-weighted assets 1/ 14.9 17.1 17.3 16.2 15.8 16.2 17.0 18.6 16.7 17.0 19.1
Tier I capital to risk-weighted assets 12.6 14.3 14.4 13.0 12.9 13.2 14.0 14.8 13.5 14.2 16.0
Capital to total assets 9.0 10.0 8.4 7.8 7.1 7.1 7.2 7.2 6.3 5.9 5.7
Asset composition and quality
Nonperforming loans (NPLs) to gross loans 13.3 12.3 11.4 10.1 8.4 8.0 8.6 9.2 7.9 7.3 7.7
Provisions to NPLs 78.4 79.8 84.9 85.0 87.2 83.8 81.4 88.3 91.2 89.5 95.5
Net NPLs to total eligible capital 14.7 10.1 7.7 7.3 5.8 7.8 8.9 5.3 4.0 4.6 1.8
Earnings and profitability
Return on assets (after tax) 1.1 1.5 1.5 1.3 0.9 0.8 0.8 1.0 1.0 1.0 1.5
Return on equity (after tax) 12.4 16.1 15.6 14.4 11.5 10.7 11.3 13.8 14.1 16.9 26.9
Net interest income to gross income 70.4 71.3 70.4 71.2 72.7 75.4 79.3 79.7 77.9 79.8 84.4
Noninterest expenses to gross income 57.2 53.3 47.8 53.1 57.1 60.2 57.6 50.0 53.5 48.4 41.9
Liquidity
Liquid assets to total assets 48.6 49.2 53.8 53.7 54.0 48.7 49.7 54.8 55.4 56.6 62.1
Liquid assets to total deposits 61.3 64.5 73.3 72.1 76.1 67.2 68.4 74.3 76.7 86.4 97.4
Loans/Deposits 49.5 48.2 46.4 46.6 50.1 55.8 51.7 44.8 46.6 50.4 42.4
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Table 7. Pakistan: Indicators of Fund Credit, 2015­28
(In millions of SDR, unless otherwise indicated)
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028
Projections 1/
Projected level of credit outstanding based on existing and prospective drawings
Total 3,600.0 4,393.0 4,393.0 4,243.0 4,867.0 5,192.5 4,810.3 5,722.2 5,660.1 5,752.2 4,983.0 4,504.3 3,042.4 1,522.8
Of which:
ECF, SBA, and ENDA 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 894.0 2,250.0 2,250.0 2,138.3 1,182.7 169.5
Extended Fund Facility and Rapid Financing Instrument 3,600.0 4,393.0 4,393.0 4,243.0 4,867.0 5,192.5 4,810.3 5,722.2 4,766.1 3,502.2 2,733.0 2,366.0 1,859.7 1,353.3
In percent of quota 348.3 216.3 216.3 208.9 239.6 255.7 236.8 281.7 278.7 283.2 245.3 221.8 149.8 75.0
In percent of end-period gross official reserves 31.4 32.4 44.1 81.6 59.2 55.7 38.0 136.4 100.2 81.5 42.7 32.1 20.6 8.8
As a share of external debt 7.3 7.7 6.9 5.8 6.0 6.4 5.5 6.5 6.2 6.1 4.9 4.2 2.8 1.3
Projected debt service to the Fund based on existing and prospective drawings
Total 338.1 51.4 77.5 248.0 532.7 799.3 833.4 901.5 1,382.2 1,775.6 1,210.7 872.2 1,787.3 1,755.6
Of which:
Principal 303.0 0.0 0.0 150.0 420.0 690.0 732.2 732.2 956.0 1,263.9 769.2 478.8 1,461.8 1,519.6
Interest and charges 35.1 51.4 77.5 98.0 112.7 109.3 101.2 169.3 426.1 511.7 441.5 393.5 325.5 236.1
SBA and ENDA principal 303.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 111.7 955.5 1013.3
Extended Fund Facility principal 0.0 0.0 0.0 150.0 420.0 690.0 732.2 732.2 702.2 756.2 515.3 367.0 506.3 506.3
Rapid Financing Instrument principal 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 253.9 507.8 253.9 0.0 0.0 0.0
In percent of quota 32.7 2.5 3.8 12.2 26.2 39.4 41.0 44.4 68.1 87.4 59.6 42.9 88.0 86.4
In percent of end-period gross official reserves 2.9 0.4 0.8 4.8 6.5 8.6 6.6 21.5 24.5 25.2 10.4 6.2 12.1 10.2
As a share of total external debt service 7.2 1.1 1.1 3.6 5.3 8.9 9.9 6.4 10.8 15.0 9.8 6.8 12.8 12.3
Memorandum items:
Quota (millions of SDRs) 1,034 2,031 2,031 2,031 2,031 2,031 2,031 2,031 2,031 2,031 2,031 2,031 2,031 2,031
Gross official reserves (millions of U.S. dollars) 15,886 18,269 14,107 7,199 11,334 13,412 17,686 5,575 7,491 9,358 15,454 18,623 19,596 22,897
Net International reserves (millions of U.S. dollars) -10,842 -8,528 -3,210 -16,893 -13,154 -11,643 -4,528 -724 2,187 7,503
Exports of goods and services (millions of US dollars) 6,630 6,875 7,689 7,521 7,732 8,054 9,887 8,990 9,413 10,061 10,772 11,545 12,237 14,170
Total External Debt (millions of U.S. dollars) 68,473 76,436 90,464 100,681 110,957 117,115 121,690 117,799 120,984 125,804 135,539 141,794 145,616 149,795
Total external debt (percent of CY GDP) 22.3 23.4 26.0 29.7 35.7 36.1 33.7 33.0 35.0 34.9 36.1 36.3 34.2 34.5
Total external debt service (millions of U.S. dollars) 6,468 6,217 9,664 9,498 13,807 12,940 11,775 18,796 17,022 15,653 16,314 17,004 18,502 18,869
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Table 8. Pakistan: Selected Vulnerability Indicators, 2018/19­2027/28
2018/19 2019/20 2020/21 2021/22 2022/23 2023/24 2024/25 2025/26 2026/27 2027/28
Est. Proj.
Key economic and market indicators
Real GDP growth (factor cost, in percent) 3.1 -0.9 5.8 6.2 -0.2 2.0 3.5 4.5 5.0 5.0
CPI inflation (period average, in percent) 6.7 10.7 8.9 12.1 29.2 24.0 11.7 7.7 6.6 6.6
Emerging market bond index (EMBI) secondary market spread 420 650 518 1253 2243 … … … … …
(basis points, end of period)
Exchange rate PRs/US$ (end of period) 160.1 168.1 157.5 204.8 286.0 … … … … …
External sector
Current account balance (percent of GDP) -4.2 -1.5 -0.8 -4.7 -0.7 -1.6 -1.5 -1.5 -1.5 -1.6
Net FDI inflows (percent of GDP) 0.4 0.9 0.5 0.5 0.2 0.2 0.3 0.4 0.4 0.5
Exports (percentage change of U.S. dollar value; GNFS) -1.3 -7.4 12.9 25.4 -10.4 8.0 6.6 7.1 7.2 6.0
Gross international reserves (GIR) in billions of U.S. dollars 7.3 12.2 17.3 9.8 4.5 9.1 13.0 16.9 19.7 21.2
GIR in percent of ST debt at remaining maturity (RM) 1/ 44.7 72.3 105.5 43.5 21.8 52.6 63.6 71.5 73.0 68.5
GIR in percent of ST debt at RM and banks’ foreign exchange (FX) deposits 1/ 31.3 52.4 75.1 34.5 17.3 40.2 48.8 55.1 56.3 53.1
Total gross external debt (ED) in percent of GDP, of which: 33.2 37.6 35.1 32.2 34.4 34.9 35.0 34.2 32.9 31.3
ST external debt (original maturity, in percent of total ED) 5.3 4.7 3.5 3.9 2.8 3.3 3.9 4.6 4.5 4.5
ED of domestic private sector (in percent of total ED) 31.1 29.6 32.0 34.4 31.1 29.8 30.9 32.6 35.1 37.7
ED to foreign official sector (in percent of total ED) 68.9 70.4 68.0 65.6 68.9 70.2 69.1 67.4 64.9 62.3
Total gross external debt in percent of exports 353.1 404.0 387.2 304.4 327.6 320.8 319.5 316.0 306.6 297.2
Gross external financing requirement (in billions of U.S. dollars) 2/ 26.6 19.8 15.5 32.7 21.2 17.6 18.1 20.5 20.8 27.0
Public sector 3/
Overall balance (including grants) -7.8 -7.0 -6.0 -7.8 -7.7 -7.6 -7.3 -5.8 -5.1 -4.7
Primary balance (including grants) -3.0 -1.5 -1.1 -3.0 -0.8 0.4 0.5 0.4 0.4 0.4
Debt-stabilizing primary balance 4/ 3.9 0.7 -8.3 -0.7 0.2 -5.1 -1.5 -0.8 -1.4 -1.1
Gross PS financing requirement 5/ 32.2 25.8 19.9 24.6 23.5 23.0 22.2 20.4 18.3 17.6
General government and government guaranteed debt (incl. IMF) 82.0 84.5 77.8 80.7 81.3 76.8 74.7 73.2 71.0 68.8
General government debt incl. IMF obligations 77.5 79.6 73.5 76.2 77.1 72.8 71.0 69.8 67.8 65.8
Net general government debt (incl. IMF) 6/ 70.2 72.9 66.0 69.9 72.1 68.9 67.6 66.8 65.1 63.4
Financial sector 7/
Capital adequacy ratio (in percent) 16.1 18.7 18.3 16.1 17.8 … … … … …
Nonperforming loans (NPLs) in percent of total loans 8.8 9.7 8.9 7.5 7.4 … … … … …
Provisions in percent of NPLs 78.4 81.6 88.8 91.6 94.4 … … … … …
Return on assets (after tax, in percent) 0.8 1.1 0.9 0.8 1.5 … … … … …
Return on equity (after tax, in percent) 11.4 14.6 13.3 12.9 26.0 … … … … …
FX deposits held by residents (in percent of total deposits) 8.6 7.3 6.0 6.1 6.8 … … … … …
Government debt held by FS (percent of total FS assets) 69.3 69.6 66.9 71.1 74.1 … … … … …
Credit to private sector (percent change) 11.9 3.0 11.5 17.4 2.3 … … … … …
Memorandum item:
Nominal GDP (in billions of U.S. dollars) 321.1 300.4 348.5 374.7 338.2 … … … … …
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Table 9a. Pakistan: Original Schedule of Reviews and Purchases
Availability Date Amount of Purchase Conditions
Millions of SDRs Percent of Quota
July 12, 2023 894 44.0 Approval of arrangement
December 1, 2023 528 26.0 First review and end-September 2023 performance/ continuous criteria
March 1, 2024 828 40.8 Second review and end-December 2023 performance/ continuous criteria
Total 2,250 110.8
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Table 9b. Pakistan: Proposed Schedule of Reviews and Purchases
Availability Date Amount of Purchase Conditions
Millions of SDRs Percent of Quota
July 12, 2023 894 44.0 Approval of arrangement
December 1, 2023 528 26.0 First review and end-September 2023 performance/ continuous criteria
March 15, 2024 828 40.8 Second review and end-December 2023 performance/ continuous criteria
Total 2,250 110.8
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Table 10. Pakistan: Decomposition of Public Debt and Debt Service by Creditor, 2022/23­2024/25 1/
Debt Stock (end of period) Debt Service
Sep-23 2022/23 2023/24 2024/25 2022/23 2023/24 2024/25
(In US$ million) (Percent total debt) (Percent GDP)2 (In US$ million) (Percent GDP)
Total 239,275 100.0 81.9 84,141 81,269 47,331 24.9 23.1 12.7
External 101,311 42.3 34.7 18,693 13,100 11,056 5.5 3.7 3.0
Multilateral creditors3 45,096 18.8 15.4 5,204 5,506 5,089 1.5 1.6 1.4
IMF 7,847 3.3 2.7
World Bank 19,102 8.0 6.5
ADB/AfDB/IADB 15,009 6.3 5.1
Other Multilaterals 3,138 1.3 1.1
o/w: IsDB 159 0.1 0.1
AIIB 1,441 0.6 0.5
Bilateral Creditors 41,767 17.5 14.3 4,282 4,007 2,472 1.3 1.1 0.7
Paris Club 7,703 3.2 2.6 1,317 1,387 1,009 0.4 0.4 0.3
o/w: Japan 3,599 1.5 1.2
France 1,293 0.5 0.4
Non-Paris Club* 34,063 14.2 11.7 2,965 2,620 1,464 0.9 0.7 0.4
o/w: China ** 23,518 9.8 8.0
Saudi Arabia** 6,708 2.8 2.3
Bonds*** 7,803 3.3 2.7 1,611 1,585 501 0.5 0.4 0.1
Commercial creditors 6,060 2.5 2.1 6,433 1,534 2,917 1.9 0.4 0.8
o/w: Chinese commercial banks 5,398 2.3 1.8
Other 662 0.3 0.2
Other international creditors 585 0.2 0.2 1,164 468 77 0.3 0.1 0.0
o/w: NPC/NBP/BOC deposits/PBC**** 585 0.2 0.2
Domestic 137,964 57.7 47.2 65,448 68,169 36,276 19.3 19.3 9.7
T-Bills 30,873 12.9 10.6 31,631 34,232 1,043 9.4 9.7 0.3
Held by: central bank 254 0.1 0.1
local banks 18,271 7.6 6.3
local non-banks 12,348 5.2 4.2
Bonds***** 92,210 38.5 31.6 22,776 28,575 30,720 6.7 8.1 8.2
Held by: central bank 19,033 8.0 6.5
local banks 57,789 24.2 19.8
local non-banks 15,388 6.4 5.3
Loans/Other 14,881 6.2 5.1 11,040 5,362 4,513 3.3 1.5 1.2
Held by: central bank****** 1,651 0.7 0.6
local banks******* 2,125 0.9 0.7
National Savings Scheme 11,105 4.6 3.8
Memo items:
Collateralized debt4 0 0.0 0.0
o/w: Related
o/w: Unrelated
Contingent liabilities
o/w: Public guarantees 12,546 5.2 3.7
o/w: Other explicit contingent liabilities5 n.a. n.a. n.a.
Central bank deposit liabilities 3,700 1.5 1.1
Central bank bilateral swap liabilities 4,216 1.8 1.2
Nominal GDP2 338,237
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Annex I. Sovereign Risk and Debt Sustainability Analysis

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Figure 1. Pakistan: Risk of Sovereign Stress
Mechanical Final
Horizon Comments
signal assessm ent
Overall … High The overall risk of sovereign stress is high, reflecting a high level of
vulnerability from elevated debt and gross financing needs and low
reserve buffers. Risks are mitigated by the fiscal adjustment safeguarded
under the SBA and continuing onto the medium term, financial
commitments by bilateral partners, and the ability of the banking system to
rollover existing domestic debt.
Near term 1/ n.a. n.a. Not applicable
Medium term High High Medium-term risks are assessed as high (in line w ith the mechanical
signal). Risks include uneven program implementation, political risks, and
Fanchart Moderate … access to adequate multilateral and bilateral financing in view of the high
GFN High … gross financing needs.
Stress test … …
Long term … Moderate Insufficient progress w ith policies and structural reforms could hamper
potential grow th, yet w ith its relatively young population Pakistan also
bears great potential through leveraging digital technologies. Pakistan is
also very exposed to the adverse consequences of climate change,
such as more frequent floods and droughts, and the necessary
adaptation costs w ould slow the reduction of debt and financing
requirements.
If the SBA is implemented consistently and macroeconomic prudence
continues for the medium term, the debt path is expected to remain on a
Sustainability dow nw ard trajectory. The GFNs, although high, w ould be covered by
assessm ent … Sustainable official bilateral and domestic financing. How ever, the underlying
2/ vulnerabilities and risks are very high including because of the significant
sovereign exposure of domestic banks, and the scope for policy flexibly
is extremely limited.
Debt stabilization in the baseline Yes
DSA summary assessment
Staff commentary: Public debt continues to be assessed as sustainable in the baseline scenario underpinned by
steadfast implementation of the proposed SBA policies, w ith tax measures introduced as part of the FY23 budget
assumed to persist beyond the program horizon, a macroframew ork w hich does not assume either additional primary
consolidation or expansion beyond FY24, and the gradual resumption of grow th in the coming years. Elevated gross
financing needs continue to pose high risks to debt sustainability, particularly as fiscal and reserve buffers have been
depleted. In this regard, timely disbursements of committed bilateral and multilateral support is critical in the period ahead.
Higher interest rates, a larger-than-expected grow th slow dow n due to policy tightening, pressures on the exchange
rate, renew ed policy reversals, slow er medium-term grow th, and contingent liabilities related to SOEs pose significant
risks to debt sustainability.
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Figure 4. Pakistan: Baseline Scenario
(Percent of GDP, unless otherwise indicated)
Actual Medium-term projection Extended projection
2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033
Public debt 77.1 72.8 71.0 69.8 67.8 65.8 64.0 62.5 61.0 59.5 58.2.
Change in public debt 0.9 -4.3 -1.9 -1.2 -2.0 -2.0 -1.8 -1.5 -1.5 -1.4 -1.3.
Contribution of identified flows 1.4 -3.2 0.0 -0.8 -1.4 -1.8 -1.7 -1.6 -1.5 -1.4 -1.4.
Primary deficit 0.8 -0.4 -0.5 -0.4 -0.4 -0.4 -0.4 -0.4 -0.4 -0.4 -0.4.
Noninterest revenues 11.4 12.5 12.4 12.4 12.4 12.4 12.4 12.4 12.4 12.4 12.4.
Noninterest expenditures 12.2 12.1 12.0 12.0 12.0 12.0 12.0 12.0 12.0 12.0 12.0.
Automatic debt dynamics 0.6 -2.8 0.4 -0.3 -1.0 -1.4 -1.3 -1.2 -1.1 -1.0 -0.9.
Real interest rate and relative inflatio -3.8 -1.3 2.9 2.7 2.4 1.8 1.9 1.9 1.9 1.9 1.9.
Real interest rate -8.9 -6.5 0.5 1.4 1.2 0.8 0.8 1.0 1.1 1.1 1.2.
Relative inflation 5.1 5.3 2.4 1.4 1.1 1.0 1.0 0.9 0.8 0.7 0.7.
Real growth rate 0.1 -1.5 -2.5 -3.1 -3.3 -3.2 -3.1 . -3.0 -3.0 -2.9 …
-2.8
Real exchange rate 4.3 … … … … … …
… … … … ….
Other identified flows 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0.
Contingent liabilities 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0.
Other transactions 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0.
Contribution of residual -0.5 -1.1 -1.8 -0.4 -0.6 -0.1 -0.1 0.0 0.0 0.0 0.0.
Gross financing needs 23.4 23.1 22.8 19.4 18.7 16.8 20.3 16.7 16.2 15.6 14.1.
of which: debt service 22.6 23.5 23.2 19.9 19.1 17.2 20.7 17.1 16.6 16.0 14.5.
Local currency 18.0 19.8 19.5 15.8 15.3 12.8 16.2 13.2 12.0 12.3 11.0.
Foreign currency 4.6 3.8 3.7 4.0 3.9 4.4 4.6 3.9 4.6 3.7 3.5.
Memo:
Real GDP growth (percent) -0.2 2.0 3.5 4.5 5.0 5.0 5.0 5.0 5.0 5.0 5.0.
Inflation (GDP deflator; percent) 26.1 24.0 11.7 7.7 6.6 6.6 6.6 6.6 6.6 6.6 6.6.
Nominal GDP growth (percent) 26.2 26.8 16.0 12.7 11.8 11.9 11.9 11.9 11.9 11.9 11.9.
Effective interest rate (percent) 11.3 13.4 12.4 9.8 8.6 7.9 8.0 8.4 8.5 8.7 8.9.
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Figure 6. Pakistan: Medium-Term Risk Analysis
Debt fanchart and GFN financeability indexes
(percent of GDP unless otherwise indicated)
Module Indicator Value Risk Risk signal EM, Non-Commodity Exporter, Program
index
0 25 50 75 100
Debt Fanchart width 37.0 0.5 …
fanchart Probability of debt not stabilizing (pct) 6.4 0.1 …
module Terminal debt level x institutions index 47.7 1.0 …
Debt fanchart index … 1.6 Moderate
GFN Average GFN in baseline 20.2 6.9 …
finance- Bank claims on government (pct bank assets) 55.3 17.9 …
ability
module Chg. in claims on govt. in stress (pct bank assets) 10.0 3.3 …
GFN financeability index … 28.2 High
Legend: Interquartile range Pakistan
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Appendix I. Letter of Intent

Ms. Kristalina Georgieva

Managing Director

International Monetary Fund

700 19th Street, N.W.

Washington, D.C. 20431

USA

Islamabad, December 18, 2023

Dear Ms. Georgieva:

1. Following the approval of the 9-month Stand-By Arrangement (SBA) in July 2023 the economy has stabilized, with a nascent recovery expected to gain strength over coming months, and inflows of committed financing have instilled greater confidence. However, the economic environment remains challenging, including due to elevated external risks, and the efforts needed to continue to sustainably resolve our macroeconomic and external imbalances. Against this backdrop, we reaffirm our commitment to the policies and objectives of the SBA, as detailed in the attached Memorandum of Economic and Financial Policies (MEFP).

2. Since the SBA was approved, our program performance has been strong. Thanks to the steadfast execution of the FY24 budget, continued adjustment of energy prices, an appropriate monetary policy stance, and prudent management of the external accounts, all but one end-September 2023 quantitative performance criteria (QPCs) and almost all indicative targets (ITs) were met. For the targets missed, the deviations were small or temporary and we have taken actions to address them. Although we stayed within the agreed nominal ceiling on the general government primary budget deficit, the related QPC was missed by a small margin due to exchange rate valuations of external financing flows as stipulated in the Technical Memorandum of Understanding (TMU). We also missed the IT on power sector payment arrears by a large margin, due largely to under-recoveries in August following the annual rebasing implementation. Since then, we have significantly enhanced enforcement and collections have improved. In addition to meeting
the structural benchmarks (SBs) on the notification of the FY24 annual rebasing and the compilation and dissemination of Quarterly National Accounts, work towards the remaining SBs is well advanced. Finally, the continuous SB on the average premium between the interbank and open market exchange rate was missed from mid-August to early-September, due in part to speculative activities and illegal trading. To ensure compliance going forward, we have initiated structural reforms in the exchange companies sector that will enhance governance and transparency, and are fully committed to build reserves as conditions permit and letting the rupee find its market value as imports are normalized even if pressures reemerge.

3. In the period ahead, we will seek to build on the strong program performance to gradually widen the path to macroeconomic sustainability and lay the conditions for sustained and balanced growth. To this end, the priorities of our economic program continue to be: (i) advancing gradual fiscal consolidation underpinned by continued spending restraint, effective execution of revenue measures, and, if necessary, contingent measures to help lock in a solid primary surplus for FY24 to bring down debt, while creating fiscal space for much-needed social and development spending; (ii) reducing quasi-fiscal deficits in the electricity and gas sectors; (iii) completing the return to a market-determined exchange rate; (iv) further building the resilience of the banking sector; (v) pursuing state-owned enterprise (SOE) reform including improved governance; and (vi) boosting efforts to build resilience from climate change.

4. The approval of the SBA catalyzed significant financing from bilateral partners, including new disbursements of budget and balance of payment support as well as rescheduling of existing bilateral loans. We are working hard to realize the remaining committed financing during the period of the SBA. We have also continued our efforts to mobilize financial support pledged during the Conference on Climate Resilient Pakistan, held in Geneva in January 2023, for humanitarian assistance and projects to rehabilitate the damage caused by the 2022 floods. Finally, the caretaker government, in collaboration with other stakeholders, has been making concerted efforts to attract foreign investment, including through the forthcoming privatization of SOEs, which will support our efforts to improve economic performance and will help replenish our gross reserves to more comfortable levels.

5. Based on the strong program performance to-date and our commitments for the period ahead, we request approval by the IMF Executive Board for (i) a waiver of nonobservance for the missed end-September QPC ceiling on the general government primary budget deficit; (ii) modifications to the end-December 2023 targets for net international reserves, the net foreign currency swap/forward position, and net domestic assets, to lock in our progress in rebuilding reserves, and for the general government primary budget deficit, to continue progress towards our FY24 primary balance goal of 0.4 percent of GDP while balancing our quasi-fiscal effort through the year; (iii) rephasing of the access date for the second review to March 15, 2024, to allow sufficient time to complete our structural agenda; and (iv) the completion of the first review under the SBA and the related purchase in the amount of SDR 528 million (26 percent of quota). Completion of the final review scheduled for March 2024 will require observance of th
e quantitative performance criteria (QPCs), indicative targets (ITs), and continuous performance criteria (PCs) with end- December 2023 test dates (set out in MEFP Table 1) and defined in the attached Technical Memorandum of Understanding (TMU). Consistent with our reform agenda, our program also envisages structural benchmarks (SBs, set out in MEFP Table 2).

6. Overall, we believe that the policies set forth in the attached MEFP are adequate for the successful implementation of our program, but we will take any additional measures that may be appropriate for this purpose. We will consult with the IMF on the adoption of these and any new measures, and in advance of revisions to the policies contained in the MEFP, in accordance with the IMF’s policies on such consultation. We will supply the IMF with timely and accurate data that are needed for program monitoring. We are committed to implementing the recommendations of the 2023 Safeguards Assessment, including revisiting risk mitigating measures for monetary policy operations. Reaffirming our commitment to our policy of transparency, we consent to the IMF’s publication of this letter, the MEFP, the TMU, and the accompanying Executive Board documents.

Sincerely yours,

Dr. Shamshad Akhtar

Minister of Finance and Revenue

Jameel Ahmad

Governor of the State Bank of Pakistan

Attachment I. Memorandum of Economic and Financial Policies

A. Recent Economic Developments and Outlook

1. After the sharp slowdown in FY23 amid intensifying external pressures, the economy has stabilized in recent months. Growth weakened considerably in FY23 as a result of damage from the floods and the deep import compression, but signs of an incipient recovery are appearing. Large-scale manufacturing has started to reverse its decline, growing by 0.7 percent (yoy) in FY24Q1, and initial estimates for the Kharif harvest indicate a strong rebound of agricultural output from the flood-affected levels in FY23H1. That said, macroeconomic vulnerabilities remain high and despite its decline since May, headline inflation remains very elevated (29.2 percent (yoy) in November) alongside continuing pressures on core inflation (18.6 and 25.9 percent (yoy) in urban and rural areas, respectively). On the external front, import compression has started to unwind and gross reserves have increased notably, but the recovery in the external position will proceed only gradually as our policies continue to adjust.

2. Reflecting recent developments and agreed-upon policies, we see the following baseline macroeconomic scenario:

Real GDP is expected to rebound in FY24, though more slowly than anticipated at the time of the Stand-By Arrangement (SBA) request. Growth is projected at 2 percent, with a strong postflood recovery in the agricultural sector compensating for still subdued activity in the industrial and service sectors, with signs of weak aggregate demand. Over the medium-term, prudent policies and the implementation of long overdue structural reforms will allow growth to rise gradually to 5 percent, supported by stronger investment and exports.

Headline CPI inflation is projected to remain above 20 percent (yoy) through FY24Q3, as the necessary recent increases in gas and electricity tariffs contribute to persistently high energy inflation, and food and core inflation ease only gradually. Maintaining a real policy rate in clear positive territory as inflation eases and reacting to any signs of new demand pressures or increasing inflation expectations will help re-anchor inflation expectations and guide down core inflation from FY24H2 onwards, provided there is no resumption in administrative import compression. Headline inflation is projected to decline significantly through FY25-26, falling within the 5–7 percent target range within FY26, supported by fiscal consolidation and the normalization of global commodity prices.

The current account returned to a deficit in FY24Q1, ending a series of surpluses driven by the deep import contraction in FY23H2. With foreign exchange (FX) market conditions normalizing, imports are expected to pick up in the coming months alongside somewhat stronger remittances, leading to a projected FY24 current account deficit (CAD) of 1.6 percent of GDP. Provided a sustained rebound in trade, the CAD is expected to remain around 1½ percent of GDP over the medium-term. Meanwhile, gross reserves increased significantly from US$4.5 billion at end-FY23 to US$7 billion at end-November 2023, owing to the realization of committed inflows and SBP purchases.

3. Risks to the baseline remain exceptionally high. We recognize that delays in implementing crucial policy and structural reforms (particularly in the areas of the exchange rate, tax reform and the energy sector) would compromise the restoration of confidence and the return of growth, impede the rebuilding of reserves, and jeopardize debt and external sustainability. Fiscal slippages would further increase already excessive pressures on domestic banks to finance the government and endanger the return to macroeconomic stability. Delays in disbursement from multilateral and bilateral partners would also put further pressure on reserves and the exchange rate and could cause an adverse shift in market sentiment. External conditions could be further strained by an intensification of geopolitical conflicts, resurgent commodity prices, and a further tightening in global financial conditions.

B. Economic Program

Fiscal Policy

4. We reiterate our firm commitment to achieve a primary surplus of at least 0.4 percent of GDP. Following slippages in FY23 that led to overruns in the primary balance by 0.3 percent of GDP, we are committed to ensuring that budget execution in FY24 stays on track. The general government primary surplus in FY24Q1 was 0.4 percent of GDP, in line with initial expectations. That said, part of this additional primary surplus was due to technical delays in releasing power subsidies of PRs 72 billion, which were registered in early October. We also faced delays in the expenditure of PSDP; while a total of PRs 137 billion was released, only PRs 41 billion was spent in FY24Q1. Against higher spending pressures, federal revenue also performed better than expected. Non-tax revenues witnessed a substantial increase of 124 percent (yoy) as the petroleum levy collection exceeded projections by PRs 22 billion despite the significant drop in consumption in September. Likewise, FBR revenue saw a 25 percent (yoy) increase an
d performed better than projected at the time of the SBA approval, especially with domestic-oriented tax revenue jumping by 36 percent (yoy), although the slow recovery of imports affected revenue collection from import taxes. Provincial tax revenue performed in line with projections at the time of the SBA approval, but their current and capital expenditure in FY24Q1 exceeded the projections.

5. Despite strong efforts by the federal government, additional measures are needed to ensure the FY24 primary surplus goal is achievable. While the federal government has contained spending, provincial current spending increased 57 percent (yoy), partly explained by the Punjab provincial government payment of PRs 115 billion related to commodity transactions, while development spending increased 61 percent (yoy). To ensure that provincial governments remain within their initial budget plans, the provinces have amended their memorandums of understanding (MoUs) signed with the federal government to include the estimated federal revenue, annual provincial revenue, and total expenditure plans, in line with the agreed surplus. Moreover, the Punjab provincial government has committed through a supplemental MoU to restrict its spending in the remainder of FY24 by PRs 115 billion to achieve a surplus of PRs 336 billion as committed in the MoU associated with the FY24 budget. Additionally, the provinces commit to ref
rain from increasing their commodity debt and to adopt a

definition of provincial surpluses according to GFSM2014. Interest expenses in FY24Q1 reached 1.3 percent of GDP, consistent with budget projections.

6. Looking ahead, we remain resolute in our commitment to continue our fiscal consolidation efforts to ensure debt sustainability, while creating more fiscal space for much needed social spending. We expect to continue the application of planned policies, that will allow us to meet our primary surplus target of 0.4 percent of GDP. In particular, we will:

On the expenditure side, we commit to: (i) refrain from granting any further increases in salaries and pensions beyond those in FY24Q1 and these items will remain within their FY24 appropriated limits; (ii) create fiscal room to protect the generosity level of the BISP unconditional cash transfer (UCT) Kafaalat program in FY24 (see below); (iii) expedite the PSDP prioritization and rationalization process in line with recommendations, aiming to achieve savings of at least PRs 61 billion; and (iv) limit energy subsidies primarily through the continued timely notification of quarterly and monthly power tariff adjustments, as determined by National Electric Power Regulatory Authority (NEPRA), the timely notification of the December 2023 semiannual gas tariff adjustment, as determined by the Oil and Gas Regulatory Authority (OGRA), and acceleration of structural cost-reducing reforms (see below).

On the revenue side. While our budget projected PRs 1,113 billion in SBP dividend transfers, the realized amount fell short by PRs 141 billion due to variations in interest rates, exchange rates and volume of liquidity operations. Although the robust revenue performance in Q1 may mitigate some of this shortfall, achieving our primary deficit target hinges on the effective execution of all FY24 budget measures, as well as measures to expand the tax base, including issuing tax notification to more than 900 thousand non-filers who have already been identified by the FBR. While internal taxes have performed better than anticipated, we anticipate they will play a more significant role in our tax collection as the year progresses. We commit to monitor the performance of the Federal Excise Duty (FED), income tax, including the advance payments and the withholding taxes, and the expansion in the taxpayer base, providing the IMF team with timely monthly data on agreed performance indicators early in the following mont
h. Should revenue fall short, we will adopt appropriate corrective measures to ensure the targets are met. Moreover, if the monthly cumulative FBR revenue falls short of the projected target by 1.5 percent in Q2, 0.5 percent in Q3 or 0.1 percent in Q4, we will evaluate the adoption of one or more of the contingency measures (¶8.b). To enhance revenue administration, including the efficiency of the track and trace system, we will strengthen our anti-smuggling efforts, we will intensify the anti-smuggling campaigns and enhance checkpoint operations in the northern

regions. Furthermore, the outcome of the tax diagnosis slated for FY24Q2 will play a crucial role in identifying the necessary additional reforms to ensure the achievement of our FY24 budget target, as well as establish significant increases in tax-to-GDP over the next year through increased taxation of undertaxed sectors (including retail, property, construction, and development, digital markets) and supportive administration efforts.

7. To ringfence our fiscal program, we reiterate: (i) our commitment not to allow supplementary grants for any additional unbudgeted spending over the parliamentary approved level in FY24 (except if needed to respond to a severe natural disaster); (ii) our commitment not to grant further tax amnesties or issue new preferential tax treatments or exemptions (continuous SBs) in FY24 including through the budget or Statutory Regulatory Orders without prior National Assembly approval; (iii) our continuing focus on critically urgent energy sector policies, outlined below; and (iv) our commitment not to introduce any fuel subsidy, or cross-subsidy scheme, in FY24 and beyond.

8. We will also continue with structural fiscal reforms, especially:

a. Revenue administration improvements to build capacity to expand the tax base and share the tax burden more widely. To facilitate information sharing with the FBR, we have amended the Income Tax Rules, 2022 to mandate 145 organizations to share information regularly with the FBR, and we will follow the legal procedure for its adoption. Simultaneously, in line with the IMF’s recent technical assistance (TA) to improve the FBR Compliance Risk Management (CRM) analytical capability, we aim to build a team of staff with advanced data science skills to perform the CRM risk and analytics. We also plan to incorporate predictive and descriptive analytics to fine-tune our CRM case selection procedures. By December 2023, we anticipate having an initial Risk Register in place and plan to develop Compliance Improvement Plans by March 2024. Moreover, in line with our digitalization plan, by December 2023, we plan to initiate pilot testing of the e-invoicing system.

b. Contingent revenue measures. Should cumulative monthly revenue significantly underperform we will, in consultation with IMF staff, implement selected measures: (i) raise the GST rate for textiles and leathers tier-1 from its reduced rate of 15 percent to the standard rate of 18 percent, expected collection of PRs 1 billion per month; (ii) implement a FED of PRs 5 per kilogram on sugar, expected collection of PRs 8 billion per month; (iii) increase advance income tax on import of machinery by 1 percentage point, expected collection of PRs 2 billion per month; (iv) increase advance income tax on import of raw materials by industrial undertakings by 0.5 percentage points, expected collection of PRs 2 billion per month; (v) increase advance income tax on import of raw materials by commercial importers by 1 percentage point, expected collection of PRs 1 billion per month; (vi) increase withholding tax on supplies by 1 percentage, expected collection of PRs 1 billion per month; (vii) increase withholding tax on
services by 1 percentage point, expected collection of PRs 1.5 billion per month; (viii) increase withholding tax on contracts by 1 percentage point, expected collection of PRs 1.5 billion per month.

c. Expand our taxpayer base. In January 2024, we plan to launch a scheme for door-to-door campaign in four provincial capitals and Islamabad, to register non-filing retailers and streamline their tax filing. By cross-referencing tax filings with electricity meter data, we will detect evasion and conduct audits when required. We will implement safeguards in the form of strict supervision through random audits of assessments filed under the scheme to verify correctness of valuations and payments. We will launch this scheme with least discretion for the field offices to alter valuations and assessments to protect the potential revenue raised from these actions. To avoid double taxation, monthly advance tax payments under the scheme will offset final income tax liabilities at year-end at the time of return filing, but no refunds of such advance payments of taxes will be issued. Moreover, we commit to provide the IMF team with timely monthly data on agreed performance indicators.

d. Public financial management (PFM) reforms to improve fiscal transparency and effectiveness.

State-owned enterprise (SOE) monitoring. We created a Central Monitoring Unit (CMU) within the Ministry of Finance (MoF) in September 2022 to improve SOE monitoring and oversight functions and provide better analysis at the aggregate SOE level. The CMU’s full operationalization will be completed with the hiring of the necessary staff and the publication of its first periodic report on the performance of SOEs, in terms of section 31(3) of the new SOE Act, using latest available data, and we anticipate both being complete by the end of the year (end-December 2023 SB).

Sovereign Wealth Fund (SWF) governance safeguards. We created a SWF in August 2023 whose assets currently comprise seven SOEs. To ensure appropriate governance of the SWF, we will adopt measures such that (i) the SWF’s annual public investment plan is subject to approval and undertaken via the standard public investment process; (ii) its overall investment strategy will be approved by the Supervisory Council; (iii) its annual accounts are audited by the Auditor General; (iv) a prohibition is placed on its assets being used to provide borrowing to any public entity, including SOEs, or as collateral; and (v) it will not engage as a private partner in a PPP.

Cash management. As part of our efforts to enhance fiscal oversight, we have operationalized our treasury single account (TSA-2), which now encompasses 231 accounts, including FBR and NHA. We are drafting amendments to the TSA rules, focusing on the sweep-in, sweep-out procedure. To support our cash management and forecasting efforts, we have requested technical assistance from the Asian Development Bank (ADB) to refine our forecasting and cash management tools. Moreover, we have established the cash management working group.

Spending transparency. To enhance transparency in all public procurement and with TA support from the World Bank, the Public Procurement Regulatory Authority (PPRA) continue to roll out the electronic procurement system (i.e., e-Pakistan Acquisition and Disposal System (e-PADS)). Since the e-PADS was launched in early 2023 with the ministries of health and education, other federal agencies and all four provinces have signed-up to the system and are in various stages of implementation or piloting. Out of the 912 planned procurement contracts in the e-PADS system since its launch, 341 contracts (amounting to PRs 83 million) have been completed. There are 1,148 Procuring Agency users and 1,082 suppliers registered in the system. In light of the regulations for publication of beneficial ownership information, the e-PADS incorporates the beneficial ownership information in suppliers’ profiles and the same has been interlinked with the beneficial ownership data maintained by the Securities and Exchange Commission o
f Pakistan for further validation. Moreover, for all contracts amounting to PRs 50 million and above, the system mandatorily requires beneficial ownership information. To date, 646 suppliers registered in the e-PADS have also provided the beneficial ownership information in their profiles. The PPRA continues to conduct training to procuring agencies at the federal and provincial levels as well as suppliers and vendors.

9. We will continue our proactive debt management efforts to cover the large financing requirements which are putting pressure on our debt sustainability. Given the large share of floating-rate domestic debt and elevated global interest rates our debt servicing costs are projected to remain high over the near term. In view of this, there is an increasingly narrow path for fiscal and monetary discipline to ensure debt sustainability. Given the importance of maintaining an active market for domestic debt, we will continue to rely on the regular primary T-bill, PIB and Sukuk auctions as the main mechanism for raising new domestic financing. At the same time, to build the foundation for strong private sector growth over the medium-term, we recognize the importance of deepening domestic financial markets and moving away from a bank-centric financial system. To this end, we will issue and list government securities, including short-term Shariah-compliant instruments, on the Pakistan Stock Exchange which will help d
iversify and expand the investor base for government debt. As we embark on public sector pension reform and work towards creating an enabling environment for retirement savings for all Pakistanis, we will redouble our efforts to reform the National Savings Scheme by making it more cost-effective and reducing crowding-out of market based saving opportunities.

Poverty Reduction and Social Protection

10. Reducing poverty and strengthening the social safety net remain key priorities. We are determined to mitigate disparities facing our vulnerable population, foster greater inclusion, and shore up the resilience of people to future shocks. To that end, our FY24 budget includes a PRs 472 billion (0.4 percent of GDP) BISP allocation, about a third higher than in FY23 (excluding one-off spending for flood emergencies). Spending execution through end-September was in line with the program target, as was spending execution for health and education. We have also (i) fully operationalized, across the country, our dynamic registry for regular NSER updates, which will allow the system to capture more households, remain more up to date, and be able to respond to shocks in a timelier fashion; and (ii) revised the education and stunting CCT programs to align them with actual child schooling and food costs.

11. Going forward, we will maintain momentum on strengthening social protection. BISP remains our prime program to provide public support to the most vulnerable.1 In addition, we are focusing on improving the level and quality of health and education spending, supported by our development partners and helped by the fiscal space created through our revenue mobilization efforts. We also strive to further enhance budgetary processes to ensure full execution of budgeted envelopes.

a. For FY24, our larger BISP budget envelope will allow us to (i) absorb an additional horizontal expansion of the UCT Kafaalat base by 300,000 families to 9.3 million families by end-FY24 (enrollment was already up to 9.2 million by end-September 2023); and (ii) adequately provision for the regular inflation adjustment exercise to be undertaken in January 2024 (to cover calendar year 2024) (end-January 2024 SB).

b. Looking forward, we will continue to work with the World Bank, building on our recent gains, to: (i) keep the NSER live and covering all of Pakistan’s poor, BISP enrollment open, and the regular re-declaration of BISP beneficiaries’ status on the intended 3-year cycle; (ii) fully roll out our new electronic payment model which will include more banking options and transparency for users; (iii) speed up enrollment of interested UCT Kafaalat families into the two CCT programs supporting children’s education and health, with targets of 1.2 million new children and 0.8 million new families, respectively, for FY24;2 (iv) implement a meaningful improvement of the still low UCT Kafaalat generosity level;3 and (v) maintain our administrative capacity and create fiscal contingency reserves to disburse emergency cash transfers in case of adverse events hitting our vulnerable families (including climate-related

catastrophes, 24).

Monetary, Exchange and Financial Sector Policies

12. We remain committed to ensuring monetary and financial stability by completing the return to a market-determined exchange rate, lowering inflation toward target, and rebuilding foreign exchange reserves.

a. Return to a market-determined exchange rate. Despite the relatively narrow FY24Q1 CAD and the significant increase in gross reserves following program approval, FX market conditions were at times disorderly, such that the average premium between the interbank and open market rate (continuous SB)4 exceeded 1.25 percent from mid-August to early-September against our program commitments. Supported by law enforcement agencies, we have taken robust action that helped ease pressures, but we recognize that law enforcement and administrative actions alone are inadequate to sustainably alleviate external pressures. We reaffirm our commitment to a market determined exchange rate, emphasizing that in line with the Foreign Exchange Regulation Act, banks and exchange companies (ECs) are at liberty to determine exchange rates between the Pakistani rupee and foreign currencies free from any formal or informal influence. Specifically, we will refrain from providing guidance or expressing preference to market participants
regarding the exchange rate or regulate demand for FX through (either formal or informal) administrative action. To enhance transparency and oversight in the open market we have initiated structural reforms in the EC sector, which will lead to stronger and better-managed ECs serving the legitimate FX needs of the public, including via banks establishing wholly-owned ECs. More broadly, we are committed to further strengthen transparency and efficiency in the FX market by (i) publishing daily exchange rates in the interbank and open market as of December 2023, (ii) finalizing preparations for transitioning to a new trading platform for spot transactions connecting all banks, with the system scheduled to go live by end-January 2024, and (iii) undertaking a feasibility study to conduct FX purchases and sales via auctions, including the publication of auction results, by end-March 2024. Although only banks and exchange companies are authorized by the SBP to carry out foreign exchange business in Pakistan, the exis
tence of informal markets and channels is a reality. In pursuit of its mandate to implement exchange rate policy, SBP is developing a framework to monitor pricing and broader developments in informal markets and publish a report with findings by end-March 2024. To safeguard the integrity of the foreign exchange market, any abusive or anti-competitive behavior by market participants will be addressed through enforcement of the relevant regulations and the applicable laws.

b. Rebuilding foreign exchange reserves. Limited reserve buffers continue to be our main constraint for durably entrenching external stability. For this reason, SBP’s interventions in the FX market will remain guided by the objective of building FX buffers, with FX sales limited to episodes of disorderly market conditions and not used to prevent a trend depreciation of the rupee driven by fundamentals. Our reserve policy is geared to achieve the objectives of (i) bringing reserves up to a more prudent level of at least US$8.2 billion (1.4 months of import coverage) by end-December 2023, with net international reserves above US$13.4 billion; and (ii) maintaining SBP’s net forward/swap position below US$3.45 billion, notwithstanding the difficult external environment.

c. Prudent and proactive monetary policy. Amid signs of weaker demand, favorable supply developments, and receding pressures from the exchange rate, we expect inflation to notably decline over coming months, and thus we maintained the policy rate at 22 percent at our latest Monetary Policy Committee (MPC) meeting on October 30. That said, we stand ready to respond resolutely if near-term price pressures reemerge, including due to stronger-than-expected second round effects on core inflation, or if pressures on the exchange rate reemerge amid the normalization in the current account. Our goal is to ensure that inflation and inflation expectations are on a clear downward path, with the exact pace of future adjustments dependent on inflation data, exchange rate developments, the strength of the external position, and the fiscal-monetary policy mix. To this end, we will aim to ensure that the real policy rate remains in clear positive territory on a forward-looking basis to signal our commitment to bring inflatio
n within the target band within FY26. To strengthen monetary policy transmission, the interest rate on the two major refinancing schemes (EFS and LTFF) will continue to be linked to the policy rate with a spread of no more than 3 percentage points.

13. To further strengthen our internal control systems, we will revisit risk mitigating measures in our monetary policy operations. We demonstrated our commitment to high safeguards standards by implementing all recommendations from the 2019 Safeguards Assessment, including by passing amendments to the SBP Act in early 2022 which strengthened SBP autonomy, governance, and accountability. In addition, SBP’s financial autonomy has been enhanced through the prohibition of monetary financing of the government and quasi-fiscal operations (14), and clear rules about profit distribution. In recent years, our reverse repo lending operations for monetary policy purposes have expanded notably (43 percent of total SBP assets as of end-June 2023) and we recognize that stronger risk mitigating measures are warranted. To this end, we will develop a plan to strengthen our internal control systems in this area, including updates to our collateral policy and counterparty eligibility policy, in line with recommendations from t
he 2023 Safeguards Assessment (new SB, March 8, 2024), with implementation starting by end-December 2024. We also reaffirm our commitment to actively engage with the appointing authority to fill vacancies of senior officials in a timely manner, as prolonged vacancies may negatively impact decision-making.

14. We have started implementation of our transition plan to phase out SBP’s involvement in the refinancing schemes. To strengthen governance and allow the SBP to focus on its core objectives, the plan envisages gradually phasing out the SBP’s involvement by mid-2028, with responsibility for these schemes transferring to the EXIM Bank of Pakistan. In the first year of the plan (FY24), SBP will phase out 10 percent of its existing refinancing exposures under the export finance scheme (EFS) and long-term financing facility (LTFF), and by end-October 2023, outstanding balances on these facilities had already been reduced by 5.3 and 13 percent, respectively. The SBP has also been coordinating closely with the EXIM Bank to support operationalization of the latter’s involvement in the refinancing schemes and issued EXIM a license to commence operations on November 3, 2023. In parallel, and in consultation with relevant stakeholders, EXIM Bank has drafted term sheets for administration of the government subsidy and
for its short-term export financing facility, and expects to launch the first export refinancing operations by the end of December 2023. Going forward, EXIM Bank’s operations will be oriented towards value addition and diversification of exports, and the government will continue to ensure that the subsidy allocations required to support these operations are fully incorporated in its annual budgets. SBP is also committed not to introduce any further refinancing schemes during the transition period or thereafter.

15. As part of our comprehensive policy efforts to address external imbalances, we are working on updating our procedures to eliminate the multiple currency practice (MCP) on government FX transactions, and will phase out the existing exchange restriction. We are continuing to work on updating the relevant procedures for FX transactions between the SBP and the government (in place since 1999), and intend to eliminate the MCP arising from the use of the weighted-average customer exchange rate for these transactions by end-January 2024. We continue to maintain an exchange restriction resulting from the limitations on advance payments for imports against letters of credit (LCs) and advance payments beyond the certain amount per invoice (without LCs) for the import of eligible items (imposed in 2018). We have been assessing the likely impact on the FX market of removing the exchange restriction and consider it necessary to complement the removal with alternative measures to avoid misuse of the facility. We will c
onsult with the IMF to ensure that any such measures are consistent with Pakistan’s Article VIII commitments and aim to complete the phase out by end-January 2024.

16. Cognizant that a sound and resilient financial sector is critical for macroeconomic stabilization, we continue to closely monitor the impact of domestic and external pressures on the sector and stand ready to act decisively to safeguard its resilience. We recognize that navigating the current economic challenges requires public trust in the soundness of banks and other financial institutions. In this regard, the SBP stands ready at all times to exercise its regulatory and supervisory mandate resolutely, including by:

a. Addressing undercapitalized financial institutions. Following a capital injection by its owners, the previously undercapitalized mid-sized public sector bank returned to capital compliance in the last quarter of FY23. However, two private banks and one public bank remain undercapitalized, and we consider it critical to swiftly address this situation in order to remove any uncertainty about the health of the sector. We have delayed resolution because of on-going talks with potential investors, but this process has been insufficient as the banks still do not comply with regulatory requirements. Despite some movement in form of partial recapitalization of one private bank, neither bank has been fully recapitalized. We will remain closely engaged with the two undercapitalized private banks and are committed to ensuring compliance with the minimum capital requirements within the next 6 months. The SBP has started the implementation of the cabinet-approved wind-down plan of the remaining undercapitalized public
bank, which anticipates the repayment of deposits, the sale of its assets and the retrenchment of staff. The SBP plans to put the legal entity into liquidation during the first quarter of 2024, at the latest. Going forward, we will take prompt supervisory action to address any additional banks which may become undercapitalized, requiring their owner to ensure adequate capital levels. We will also continue our efforts to tackle persisting pockets of vulnerability in the microfinance bank sector, which has been severely affected by the floods, among others by asking the owners for time-bound recapitalization plans to address existing capital shortfalls and by otherwise ensuring the orderly market exit of nonviable institutions. We will postpone the extension of the deposit insurance system to this sector until these issues have been addressed to the satisfaction of the supervisor, while ensuring that other preconditions have been met. SBP has adopted a comprehensive strategy to address high levels of NPLs, incl
uding by requiring bank-specific plans for reducing NPLs, and to charge-off fully provisioned NPLs (SB under the previous EEF) and is in the process of finalizing its public consultation process with the industry.

b. Mitigating external pressures. We will ensure that foreign exchange exposures of banks remain within the regulatory limits (or else the affected institution will face supervisory sanction) and that adequate FX liquidity be maintained by all deposit taking institutions. We will also assess options to strengthen the monitoring of FX exposures in the non-financial corporate sector, including unhedged off-balance sheet exposures through forwards.

c. Upgrading the crisis management framework. We are advancing our efforts to strengthen our bank resolution and crisis management frameworks, including the deposit insurance scheme, and align these with international best practice. To that end, we have finalized the technical work in the legislative committee and the cabinet-approved the draft legal framework on October 30, 2023, which is now being prepared for submission to parliament (Senate) to meet the SB (end-December 2023 SB). Before the submission, we will engage with IMF staff to confirm that the draft is substantially aligned with IMF TA advice, and amend the draft accordingly, where needed.

d. Effective implementation of AML/CFT. Following the enhancements to the AML/CFT framework, the SBP and FBR are implementing the February 2023 Regulations giving banks access to the asset declarations of public officials BPS17-22 held by the FBR. The FBR has created a Customer Due Diligence Office to respond to banks’ request for information. Consistent with the regulations, the FBR will issue a feedback report by end-January 2024. The SBP will also conduct a focused inspection to assess banks’ utilization of the asset declarations and internal controls to safeguard confidentiality of the information. The FBR, SBP and the Financial Monitoring Unit will plan joint trainings in the future with designated bank officers to ensure increased uptake in the system and improve AML/CFT compliance.

Energy Sector Policies

17. The power sector remains under pressure. The stock of power payment arrears (circular debt, CD) stood at PRs 2,537 billion (3.0 percent of GDP) at end-September 2023, an increase of PRs 227 billion (0.2 percent of GDP) since end-FY23.5 The increase exceeded our target due to a lower than-anticipated annual tariff rebasing and large DISCO under-recoveries (PRs 222 billion, centered in August when the annual rebasing was implemented. Collections dipped to 77 percent during August due to the large price shock and high average monthly consumption per household. Since then, cumulative collection improved to 84 percent at end-September and to 90 percent at end-October, with the support of enhanced enforcement actions (see below).

18. Going forward, we remain resolved to address the drivers of CD flow. Our updated FY24 Circular Debt Management Plan (CDMP) projects zero net CD accumulation for this fiscal year. We continue to project the sector’s financial gap (after revenue collection) to amount to PRs 976 billion (0.9 percent of GDP). The FY24 budget subsidy of PRs 976 billion (0.9 percent of GDP) will address these urgent liquidity needs by covering: (i) outlays for the projected power tariff differential (for DISCOs and KE, PRs 319 billion) and other—in large parts one-off or installment payments to provinces, tribal areas, and KE (PRs 265 billion); and (ii) CD stock payments of PRs 392 billion through PHPL principal settlements (PRs 82 billion) and payments to GPPs and IPPs (PRs 310 billion). Key priorities of our FY24 CDMP are:

a. Ensuring cost-recovering tariffs. We notified the FY24 annual rebasing (AR) in full on July 27, 2023, with effect from July 1, as determined by NEPRA (PRs 5.75 per unit on average across consumer slabs) (end-July 2023 SB). NEPRA’s FY23Q3 quarterly tariff adjustment (QTA) was automatically notified in July 2023 (PRs 1.25 per unit on average across consumer slabs) and the FY23Q4 QTA was notified in October (PRs 3.28 per unit on average across consumer slabs). NEPRA will continue with automatic notifications of regular QTAs and FCAs in line with established formulas in a timely manner, supported by our efforts to spare protected slabs (as this will help both achieve cost recovery and increase the progressivity of the tariff structure for residential consumers, as intended by the 2022 residential subsidy reform). To this end, we will further strengthen cooperation between the DISCOs, Ministry of Power, and NEPRA to facilitate swift petition and determination processes.

b. Better targeting subsidies. After the residential subsidy reform in 2022,6 we are, with the support of the World Bank, taking further steps in our multi-year subsidy rationalization plan that focuses on tube wells, subsidies which primarily benefit large agricultural users. In Punjab, Sindh, and Khyber-Pakhtunkhwa provinces, the first phase of the reform will remove the government subsidy only. For this reform, we plan to seek approval from our cabinet and NEPRA on a concrete proposal by end-FY24, with implementation to begin in FY25Q1. The second phase will eliminate one-third of the cross-subsidy for tube wells with implementation to begin in FY26. We are also exploring various options to replace agriculture tube well subsidies in Baluchistan.

c. Accelerating medium-term cost-reducing reforms. We have started to accelerate various programmed structural reforms with the help of the World Bank, ADB, and other partners (supported through well-prioritized and complementary conditionality in their programs) that are aimed at reducing commercial and technical losses, improving governance and power purchase agreement (PPA) terms, increasing competition as well as reducing generation costs and greening the energy mix. In FY24 we are continuing to:

Improve price signals for inputs. We are engaged in a series of price-setting reforms for end-user gas prices (19) through price rationalization to channel scarce gas resources to the most efficient gas-based power generator (merit order principle). The next round will be implemented in line with OGRA’s next regular semiannual gas tariff determination in December 2023.

Renegotiate remaining PPAs in return for clearing unguaranteed CPPA-G arrears. This year, we will settle up to PRs 310 billion earmarked for IPPs and government power producers (GPPs) with revised PPA terms, using the established contract structure (10-year float ingrate PIBs and 5-year sukuks in equal parts, or a more efficient financial instrument).

Convert expensive government-guaranteed PHPL debt into cheaper public debt. We have created fiscal space to settle the PRs 82 billion falling due in FY24 from the budget and will roll over the public guarantee for the remaining PRs 683 billion.

Improve distribution efficiencies. As the most critical part of managing the CD flow, we are taking measures toward improving DISCOs’ performance, efficiency, and governance by bringing private sector participation in the form of long-term concessions arrangements (also supported by the new SOE Act and policies, 21.a) as a step towards ultimate divestment or privatization. Towards this end, we plan initiation of work which include engagement of a transaction advisor by end-April 2024 and the development of a transaction structure, DISCO selection, and way forward thereafter. Over time this reform is expected to facilitate a significant reduction in the cost of distribution.

Institutionalize anti-theft procedures. Our enhanced and sustained anti-theft efforts, which have yielded PRs 46 billion from September 7 to October 31, are expected to improve collections while demonstrating our commitment to reforms in this area to potential concessionaires. The sustainability of our anti-theft campaign requires the institutionalization of these recent initiatives. Formal approval of an anti-theft law by the legislature, including the creation of a dedicated police force for all DISCOs and the recognition of electricity theft as a cognizable offense, is necessary for improved DISCO governance and improved enforcement capability. In addition, an independent monitoring system through officers outside the DISCOs for 2,500 high-loss feeders is required to be implemented through the Power Planning and Monitoring Company (PPMC).

Pursue other reforms, most notably: (i) accelerate the green energy transition as per the 2021 National Electricity Policy, which mandates an increased share of variable and cheaper renewable energy in the generation mix. Progress toward this was recently made with the update of the IGCEP in 2022. As an annually updated plan, we are currently working on Integrated System Planning that includes a 2024 IGCEP to be accompanied by the first ever Transmission System Expansion Plan (TSEP). Both plans will be submitted to NEPRA for approval in April 2024; and (ii) seek NEPRA’s approval of the Commercial Code to set the procedures, rights, and obligations that govern the trading in the new wholesale market (expected to be launched in April 2024), and thus improve its efficiency. We have notified the rules and eligibility criteria as of September 4, 2023, for key market entities expected to be launched beforehand, as per the NEPRA Act.

Per the established principles, we will strive to reduce capacity payments as we pay arrears, either by renegotiating PPAs with a new strategy or by lengthening the duration of bank loans, depending on adequate budget space and CDMP implementation progress. The same principle applies to the assumption of PHPL amortization by the federal budget. We will also continue to refrain from netting out cross-arrears (unless they are independently audited); using “non-cash” settlements (e.g., payables against the reimbursement of on-lent loans to DISCOs); and issuing government guarantees (e.g., for PHPL-issued sukuks to transfer CPPA-G payables to PHPL).

19. The gas sector faces unsustainable CD dynamics and urgent liquidity pressures; we are accelerating our reform effort accordingly. The gas sector’s CD stock has increased considerably—to an estimated Rs 2,084 billion (2.5 percent of GDP) at end-FY23, from PRs 1,623 billion (2.4 percent of GDP) at end-FY22, quickly approaching that of the power sector. Liquidity constraints have, on the other hand, increased gas shortages. The main driver of this evolution was the non-implementation of regular end-user gas price adjustments in line with semiannual OGRA determinations of prescribed prices since September 2020. Additional drivers were the accumulation of the re-gasified liquid natural gas (RLNG) tariff differential since FY19, and diversion costs (that mainly reflect the diversion of costly RLNG to domestic consumers during the winter months). In response, we have started—supported by the World Bank—to take important reforms that aim at generating more cash and reducing CD, thus enabling gas companies to inve
st in their infrastructure and reduce unaccounted for gas (UFG) losses. Specifically, we updated end-user gas prices and changed the structural end-user gas tariff in February 2023 and updated end-user gas prices again in November, effective November 1, 2023.7 As part of our ongoing efforts to contain further CD accumulation and reform the gas sector we will:

a. Continue with regular end-user gas price updates in line with revenue and legal requirements. We will implement the notification for OGRA’s scheduled semiannual gas price adjustment, anticipated for December 2023, within the mandated 40-day window (new SB, February 15, 2024). Any price adjustment will maintain the current progressive slab structure for domestic consumers and maintain protection for the most vulnerable household consumers, seek to reduce large preferential cross-subsidies across industrial and commercial users, and further disincentivize captive gas use. Finally, we will advise OGRA within 40 days to enable the automatic notification of semiannual gas price determinations, in line with the 2022 Amendment to the 2002 OGRA Ordinance.

b. Reduce incentives for captive power. The pricing structure for non-domestic consumers will continue to be refined via semiannual notifications, including for the December 2023 determination, with the goal of directing scarce resources to more efficient assets, phasing out captive power in the near term, and transitioning captive power users to the electricity grid, in line with the Cabinet Committee on Energy decision of January 2021. Accordingly, prices for captive power users will be increased where network distribution and reliability are present, whereas other captive power users should make the transition to the electricity grid within twelve months, at which point prices will be increased to the RLNG-equivalent. To bring the use of captive power generation to a conclusive end by January 2025, we will announce a plan to make the use of this generation uneconomic by end-March 2024.

c. Move to reduce price disparities between regions and industries, and within industries. This will include (i) gradually seeking moving toward prices provided to the fertilizer sector that are closer to cost-recovery. Gas provided to a section of the fertilizer sector receives a large cross-subsidy from industry and upon expiry of the current fixed concession fee tariff agreement, the cross-subsidy will end in March 2024; (ii) equalizing rates between export and non-export industries. We will also entirely end the subsidization of fertilizer products through gas price cross-subsidies, with any subsidies being provided by explicit on-budget subsidies from July 1, 2024.

d. Unify pricing across indigenous gas and imported RLNG, and improve the cross-subsidies across industries. The Ministry of Energy is working on guidelines to be issued to OGRA to implement structural gas pricing changes implied by the weighted average cost of gas (WACOG) bill enacted in March 2022. Once implemented, the WACOG will allow full cost recovery of more expensive imported RLNG and provide a more adequate price signal to guide gas consumption across all sectors and help reduce power generation costs.

e. Improve the monitoring and management of the gas CD. Replicating the reform approach in the power sector and supported by international development partners, we are working toward: (i) devising a precise definition of CD for the gas sector (that includes oil but excludes power sector elements); (ii) compiling detailed and verified gas CD stock statistics; (iii) establishing a quarterly gas CD flow reporting system (also benefitting from improved data management and projection capacity); and (iv) devising a gas CDMP. Salient elements of the CDMP will include regular adjustments of end-user gas prices as per established formulas (and in line with the OGRA Amendments Ordinance effective since March 2022) and tangible costreducing reforms (including measures to reduce unaccounted for gas (UFG) losses, including through improvements in infrastructure, rehabilitation of networks, and theft controls).

Structural Policies

20. We continue to implement several comprehensive structural reforms in an effort to attract investment and support growth and job creation. We will continue to focus on policies that: (i) reform SOEs; (ii) improve the overall business environment; (iii) enhance governance; and (iv) build resilience to climate change.

21. We are committed to improving SOEs’ governance, transparency, and efficiency as well as limiting their fiscal risks. In addition to the operationalization of the CMU within the MOF (8.d) that will improve the government’s SOE monitoring, specific actions include:

a. Enhancing the SOE legal and regulatory framework. Our new SOE Act took effect in January 2023 and, inter alia: (i) ensures that SOE operations are grounded on a commercial footing, including by defining what constitutes a commercial SOE; and (ii) strengthens oversight and ownership arrangements. We have, working with the support of ADB, significantly advanced further regulatory reforms, including (end-November 2023 SB) (i) operationalization of the new SOE Act into a policy that clarifies ownership arrangements and the division of roles within the federal government; and (ii) revision of the Laws of four selected SOEs (the National Highway Authority, Pakistan Post, Pakistan National Shipping Corporation, and Pakistan Broadcasting Corporation) to make the SOE Act fully applicable to those SOEs. We are committed to introducing further amendments to the four dedicated SOE laws during the parliamentary adoption process, in consultation with the IMF, such that they are fully aligned with key SOE corporate gover
nance principles introduced in the new SOE Act. We are also committed to continue amending other SOE-dedicated laws, to similarly align them with the provisions of the new SOE Act. With the implementation of the SOE policy, we are committed to moving forward with the SOE triage plan, including privatization of select SOEs.

b. Ensuring SOE governance under the new SWF. To ensure that the SOEs that have come under the ownership of the newly-created SWF (8.d) remain under the same high-quality governance structure as other SOEs (as provided for under the new SOE Act), we will implement safeguards to (i) regulate SOE ownership functions, including appointment of SOE Board members, performance monitoring and evaluation, and financial oversight); (ii) ensure transparency and reporting requirements including auditing by Pakistan’s Auditor General; (iii) prohibit lending by the SWF to any other public bodies; (iv) implement transparency and accountability mechanisms, including the requirement for top SOE executives and Board members to file asset declarations; and (v) ensure that SWF-owned SOEs’ public investment plans are integrated into the standard public investment process, as with other SOEs.

c. Increasing transparency. SOEs are continuously audited by external auditors and their audit reports are usually published, while the Auditor General conducts the ‘compliance with authority’ audit of the accounts of SOEs. In addition, we have asked our Auditor General to conduct special audits of several SOEs (i.e., SSGCL, HESCO, and PESCO) because of their size and importance in their sectors. The scope and terms of reference have been finalized and we plan to have the audit initiated in FY24Q3.

22. We see improving Pakistan’s competitiveness and the business environment as key for supporting medium-term growth, private sector development, investment, and job creation. Going forward, we will: (i) simplify procedures to start a business and eliminate other unnecessary regulations, including the introduction of a single portal for all company registration and digital integration of federal and provincial entities involved in starting a business; (ii) streamline the approval process for foreign direct investment; (iii) improve trading across borders by reducing customs-related processing time and reducing hours to prepare import/export documentation; (iv) simplify and harmonize the process of paying taxes through the introduction of a simple and fully automated regime for paying taxes, contributions, and fees; and (v) launch a communication drive to disseminate information regarding the reforms undertaken. To that end, we will take steps to ensure that the newly-created Special Investment Facilitation C
ouncil (SIFC) does not create an uneven playing field, promise incentives of any sort or guaranteed returns, distort the investment landscape, or increase the role of the state, which could disincentivize high-quality, long-term investments. We will establish a set of best transparency and accountability practices to the SIFC operations and decisions; ensure that all investments made under SIFC are the result of the standard Public Investment Management framework (and consistent with the affordability test under this framework) operated by the Ministries of Planning and Finance.

23. Strengthening governance and combatting corruption are critical towards our goals of enhancing the business climate and safeguard public funds against misuse. Our priority lies on strengthening the effectiveness of anticorruption institutions to prevent, deter and detect rentseeking, bribery and fraud. We will institutionalize public access for annual declarations for all members (elected and unelected) of the federal government cabinet of Pakistan, through the issuance of permanent regulations. The second Review Cycle under the UNCAC implementation mechanism was completed and the Executive Summary was made available. We will publish the full UNCAC report, subject to approval by cabinet, including the findings, analysis, and recommendations for improving the anti-corruption framework. On October 5, 2023, the Ministry of Law and Justice has re-notified the task force to complete and publish a comprehensive review of the institutional framework of our anticorruption institutions (including the National Acco
untability Bureau) to enhance their independence and effectiveness in investigating and prosecuting corruption cases, with proposals for legislative amendments as appropriate. The task force will include the participation and inputs from reputable independent experts with international experience and civil society organizations. Taking into account the UNCAC report, the task force will also recommend an action plan with appropriate structural reform measures that strengthen independence of anticorruption institutions (including the appointing process of the Chairperson of the National Accountability Bureau, scope of investigative jurisdictions of anti-corruption institutions), prevent political influence and persecution, and provide for transparency and accountability controls against abuse (including mechanisms for discipline and accountability). Focused consultations with other key stakeholders and the public will also be undertaken before the report of the task force is finalized. The task force is expecte
d to publish and complete the report by end-March 2024.

24. Responding to climate change is an urgent and existential challenge for Pakistan, as most recently highlighted by the catastrophic 2022 floods. We recently took administrative steps to improve green budgeting, starting with the FY24 budget, to better streamline the budget planning, execution, and reporting processes of green budget components.

a. Mitigation and transition management. We are an active party to the Paris Agreement of the United Nations Framework Convention on Climate Change (UNFCCC) and Global Methane Pledge.8 Key projects comprise our ambitious reforestation project (i.e., Up-scaling Green Pakistan Program, of which 2.07 billion trees have already been planted, with a sequestering potential of 148.8 million tons of carbon through 2030), greening our energy mix (18.c), and policies aimed at inducing changes in relative prices to guide households and firms toward a more carbon-neutral economy (including through an adequately taxing fuel products (7), and developing Policy Guidelines for Trading in Carbon Markets, which we plan to send to cabinet for approval by end-December 2023).

b. Adaptation. We recently finalized and published our UNFCCC-supported National Adaptation Plan (NAP), which identifies adaptation needs and polices to boost Pakistan’s resilience to climate change. As a next step, we are in the process of translating the NAP into specific, costed investment plans to be implemented at the provincial and local levels. We aim to complete the costing exercise by September 2024. We have also instructed national entities to gain accreditation for the Green Climate Fund to better access global climate finance. We continue to focus on strengthening PFM to enhance capital expenditure efficiency through a Climate-PIMA supported by IMF TA; the Climate-PIMA and PIMA action plan that followed from this TA is on track to be adopted by our cabinet (end-December 2023 SB) and we are now working on its implementation. This includes the development of a handbook for climate screening in the project appraisal process; the development of a green building code for Pakistan, which should be taken
to cabinet by the end of 2023; the inclusion of climate risks in our fiscal risk statement, which has been published on our website;9 and the establishment of a sustainable finance bureau that will work with line ministries and provinces to develop capacity in preparing climate-responsive projects. We are also prioritizing resilience-boosting policies, guided by our NAP and Resilient Recovery, Rehabilitation, and Reconstruction Framework (4RF), and measures to strengthen the agriculture-water nexus, urban resilience, national and human capital (including social protection), and disaster risk management.

25. We recognize the importance of timely, reliable, and comprehensive provision of macroeconomic data for both policymakers and the private sector. In this regard, we met the structural benchmark on the compilation and dissemination of the Quarterly National Accounts (QNA) for FY24Q1 and the revision of annual provisional estimates for FY23 (end-November 2023 SB). Pakistan Bureau of Statistics published the first QNA, covering FY24Q1, in November 2023.

Financing and Program Monitoring

26. We have secured adequate financing from our international partners to support our economic reform program. Current projections suggest that with the policies outlined in this MEFP, gross external financing needs for FY24 will amount to approximately US$25.0 billion (including the current account), of which about US$13.8 billion is amortizations of the public sector. Ahead of the SBA approval we secured US$5.6 billion in additional financing commitments from bilateral, multilateral, and commercial partners, of which over US$3 billion has already been disbursed. We have also secured commitments from these partners regarding US$7 billion in rollovers, US$1 billion in refinancing of maturing debt, and US$1.2 billion in amortization savings from a debt rearrangement covering some existing external loans. In line with program financing commitments, key bilateral creditors will at least maintain their exposure to Pakistan.

27. Implementation of policies under the program will continue to be monitored through quarterly reviews, with quarterly performance criteria and continuous performance criteria, as set out in our MEFP dated June 30, 2023, along with this MEFP. The attached Technical Memorandum of Understanding (TMU) defines the quantitative performance criteria, continuous performance criteria, indicative targets and structural benchmarks under the program. Completion of the final review scheduled for March 2024 will require observance of the quantitative performance criteria for end-December 2023, respectively, as set out in Table 1—along with continuous PCs and ITs. The SBs are set out in Table 2.

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Table 1. Pakistan: Quantitative Performance Criteria and Indicative Targets, FY2023/24 1/
(Billions of Pakistani rupees, at program exchange rates, unless otherwise indicated)
end-September 2023 end-December 2023
Program Adjusted Actual Status Program Proposed
CR 23/260 Prog. CR 23/260 (PC)
I. Quantitative Performance Criteria
Floor on net international reserves of the SBP (millions of U.S. dollars) -14,550 -15,673 -13,781 Met -13,800 -13,400
Ceiling on net domestic assets of the SBP (stock, billions of Pakistani rupees) 15,048 15,370 14,410 Met 14,888 14,450
Ceiling on SBP’s stock of net foreign currency swaps/forward position (negative, millions of U.S. dollars) 4,200 … 3,540 Met 4,000 3,450
Ceiling on net government budgetary borrowing from the SBP (stock, billions of Pakistani rupees) 4,708 … 4,380 Met 4,708 4,708
Ceiling on the general government primary budget deficit (cumulative, excl. grants, billions of Pakistani rupees) 2/ -87 -389 -376 Not met -1,232 -1,420
Ceiling on the amount of government guarantees (stock, billions of Pakistani rupees) 4,000 … 3,806 Met 4,050 4,050
Cumulative floor on targeted cash transfers spending (BISP) (billions of Pakistani rupees) 87.5 … 89.8 Met 185.5 185.5
II. Continuous Performance Criteria
Zero new flow of SBP’s credit to general government 0 … 0 Met 0 0
Zero ceiling on accumulation of external public payment arrears by the general government 0 … 0 Met 0 0
III. Indicative Targets
Cumulative floor on general government budgetary health and education spending (billions of Pakistani rupees) 465 … 482 Met 1,031 905
Floor on net tax revenues collected by the FBR (cumulative, billions of Pakistani rupees) 1,977 … 2,042 Met 4,425 4,425
Ceiling on net accumulation of tax refund arrears (cumulative, billions of Pakistani rupees) 32 … -15 Met 43 43
Ceiling on power sector payment arrears (cumulative flow, billions of Pakistani rupees) -155 … 227 Not Met 64 385
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Table 2. Pakistan: Structural Conditionality
Actions
Structural Benchmarks Date Status
Fiscal
1 Commit to not grant further tax amnesties. Continuous Met.
2 Avoid the practice of issuing new preferential tax treatments or exemptions. Continuous Met.
3 Issuance by the Central Monitoring Unit (CMU) of its first periodic report on the performance end-Dec. 2023 In progress.
of SOEs, using latest available data, to the Federal Government.
Social
4 Inflation adjustment of the unconditional cash transfer (Kafaalat). end-Jan. 2024 In progress.
Monetary and Financial
5 Average premium between the interbank and open market rate will be no more than 1.25 Continuous Not met.
percent during any consecutive 5 business day period.
6 Submission to parliament of amendments to align Pakistan’s early intervention, bank end-Dec. 2023 In progress.
resolution, and crisis management arrangements with international good practices, in line with
IMF staff recommendations.
Energy Sector and State-Owned Enterprises
7 Notification of the annual rebasing (AR) for FY24 to take effect on July 1, 2023. end-Jul. 2023 Met.
8 Improve state-owned enterprise (SOE) governance by: (i) operationalizing the recently end-Nov. 2023 Not met.
approved SOE law into a policy that clarifies ownership arrangements and the division of roles
within the federal governments; and (ii) amending the Acts of four selected SOEs to make the
new SOE law fully applicable to those SOEs.
Climate
9 Cabinet adoption of a Climate-PIMA and PIMA action plan. end-Dec. 2023 In progress.
Economic Statistics
10 Compilation and dissemination of Quarterly National Accounts for FY24Q1 and revised annual end-Nov. 2023 Met.
estimates for FY23.
New Structural Benchmarks
1 Notification of the December 2023 semiannual gas tariff adjustment determination. February 15, 2024
2 Develop a plan to strengthen internal control systems in lending operations, including updates March 8, 2024
to collateral policy and counterparty eligibility policy, in line with recommendations from the
2023 Safeguards Assessment.
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Attachment II. Technical Memorandum of Understanding

1. This Technical Memorandum of Understanding (TMU) sets out the understanding between the Pakistani authorities and the IMF staff regarding: (i) the definitions of quantitative performance criteria (and their adjustment mechanisms), indicative targets, and—if needed—prior actions and structural benchmarks in Section A below; and (ii) the respective reporting requirements used to monitor developments—for the economic program under the Stand-By Arrangement (SBA)—as described in the authorities’ latest Letter of Intent (LOI) dated December 18, 2023, and the attached Memorandum of Economic and Financial Policies (MEFP, notably its Tables 1 and 2) in Section B below. To this effect, the

authorities will provide the necessary data to the IMF as soon as it becomes available. The definitions

used in this TMU will be adjusted to reflect any changes in program design and accounting classifications introduced during the program period.

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Text Table 1. Pakistan: Program Exchange Rates
(Units of currency per U.S. dollar) 1/
Currency Rate Currency Rate
EUR 0.918274 THB 35.200194
JPY 143.118405 MYR 4.676498
CNY 7.231199 SGD 1.352850
GBP 0.785114 INR 82.008266
AUD 1.498464 SAR 3.750498
CAD 1.316900 SDR 0.749411
1/ As of June 26, 2023.
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2. For purposes of monitoring under the program, all assets and liabilities as well as debt contracted, denominated in Special Drawing Rights (SDRs) or in currencies other than the U.S. dollar, are converted into U.S. dollars at the program exchange rates. The program exchange rate of the Pakistani rupee to the U.S. dollar is set at 286.7091 rupee per one U.S. dollar. The corresponding cross exchange rates for other foreign currencies are provided in Text Table 1.

DEFINITION OF PERFORMANCE CRITERIA AND INDICATIVE TARGETS

A. Overview

3. The program sets performance criteria and indicative targets for defined test dates (MEFP Table 1) as well as defines continuous performance criteria that apply throughout the program period. The program sets the following performance criteria:

Performance Criteria.

Floor on the net international reserves (NIR) of the State Bank of Pakistan (SBP) (millions of U.S. dollars);

Ceiling on the net domestic assets (NDA) of the SBP (stock, billions of Pakistani rupees);

Ceiling on SBP’s stock of net foreign currency swap/forward position (millions of U.S. dollars);

Ceiling on the general government primary budget deficit excluding grants (cumulative flows, billions of Pakistani rupees);

Ceiling on net government budgetary borrowing from the SBP (including provincial governments) (stock, billions of Pakistani rupees);

Ceiling on the amount of government guarantees (stock, billions of Pakistani rupees);

Floor on targeted cash transfers spending (BISP) (cumulative, billions of Pakistani rupees).

Continuous Performance Criteria.

No new flow of SBP’s credit to general government;

Zero ceiling on the accumulation of external payment arrears by the general government

Other (see 25).

Indicative Targets.

Floor on general government budgetary health and education spending (cumulative, billions of Pakistani rupees);

Floor on net tax revenues collected by the Federal Board of Revenue (FBR) (cumulative, billions of Pakistani rupees);

Ceiling on net accumulation of tax refund arrears (flow, billions of Pakistani rupees);

Ceiling on power sector payment arrears (flow, billions of Pakistani rupees).

B. Performance Criteria

B.1. Floor on the Net International Reserves (NIR) of the SBP

Definition

4. The general government is defined as the central (federal) government and local (provincial) governments, excluding state-owned enterprises. The definition of the general government includes any new funds, or other special budgetary or extra-budgetary entities, that may be created during the program period to carry out operations of a fiscal nature as defined in the IMF’s Manual on Government Finance Statistics 2014. The authorities will inform IMF staff on the creation of any such entities without delay.

5. Net international reserves (stock) of the SBP are defined as the U.S. dollar value of the difference between usable gross international reserve assets and reserve-related liabilities, evaluated at program exchange rates.

6. Usable gross international reserves of the SBP are readily available claims on nonresidents denominated in foreign convertible currencies and controlled by the monetary authorities for meeting balance of payments financing needs, for intervention in exchange markets to affect the currency exchange rate, and for other related purposes. Gross official reserves include: (i) holdings of foreign currencies; (ii) holdings of SDRs; (iii) the reserve position in the IMF; and (iv) holdings of fixed and variable income instruments. Excluded from usable reserves, inter alia, unless there is also a reserve-related liability associated with it, are: (i) claims on residents; (ii) assets in nonconvertible currencies; (iii) precious metals; (iv) illiquid assets; (v) assets that are pledged or collateralized; (vi) any reserve assets that are not readily available for intervention in the foreign exchange market because of lack of quality or liquidity that limits marketability at the book price; and (vii) balances held at fo
reign branches of non-investment rated domestic banks.

7. Reserve-related liabilities of the SBP include all foreign exchange liabilities to residents (except general government) or nonresidents, including: (i) foreign currency liabilities, excluding liabilities to the general government, with remaining maturity of one year or less; (ii) any foreign exchange liabilities of SBP and general government arising from derivatives positions (such as futures, forwards, swaps, and options) on a net outstanding basis (defined as the long position minus the short position); (iii) outstanding IMF credits to Pakistan; and (iv) foreign exchange deposits with the SBP of foreign governments, foreign central banks, foreign deposit money banks (excluding regulatory capital deposits of foreign banks with the SBP), international organizations, and foreign nonbank financial institutions, as well as domestic financial institutions (excluding regulatory capital deposits of domestic financial institutions with the SBP). The reserve-related liabilities of the SBP exclude SDR allocations
and accrued interest on reserve-related liabilities.

8. Aggregate net position in the foreign exchange derivatives is defined as the aggregate net positions in forwards and futures in foreign currencies of the SBP and general government vis-à-vis the domestic currency (including the forward leg of currency swaps).

9. Gross sale of foreign exchange includes outright and swap sales of foreign exchange by the SBP to banks in the foreign exchange interbank market by using foreign exchange market intervention. The swap sale of foreign exchange and maturities of the forward transactions will be measured on a net daily basis.

10. Net purchase of foreign exchange is defined as outright and swap purchases of foreign exchange minus outright and swap sales of foreign exchange by the SBP from/to banks in the foreign exchange market by using foreign exchange market intervention. The net purchase of foreign exchange will be measured on a net daily basis.

Adjustment mechanism

11. For the end-December 2023 test date, the floor on NIR will be adjusted upward (downward) by the cumulative excess (shortfall) in cash inflows usable for the financing of the government budget from multilateral and bilateral creditors, commercial borrowing, and bond issuance relative to the projected inflows (Table 1). Cumulative cash inflows usable for the financing of the government budget are defined as external disbursements (including grants) from official multilateral creditors (including, but not limited to the Asian Development Bank, Islamic Development Bank, and World Bank), official bilateral creditors (including, but not limited to bilateral oil facilities, China, Saudi Arabia, UAE, DFID-UK, and USAID), external bond placements and other commercial borrowings that are usable for the financing of the central government budget, plus proceeds from sales of state-owned assets to official bilateral partners, sovereign wealth funds. Downward adjustment of the floor on NIR will be limited to a maximum
of US$2,000 million for the December 2023 test date.

B.2. Ceiling on the Net Domestic Assets (NDA) of the SBP

Definition

12. Net domestic assets of the SBP are defined as the difference between reserve money (as defined below) minus the NIR of the SBP (as defined above). For the purposes of computing the NDA target, the NIR is valued at the program exchange rate (2) and expressed in Pakistani rupee. 13. Reserve money (RM) is defined as the sum of: (i) currency outside schedule banks (deposit money banks); (ii) schedule banks’ domestic cash in vaults; (iii) schedule banks’ required and excess rupee and foreign exchange deposits with the SBP; and (iv) deposits of the rest of the economy with the SBP, excluding those held by the federal and provincial governments and the SBP staff retirement accounts.

Adjustment mechanism

14. Consistent with the NIR target adjustment mechanism (as defined above), the ceiling on the NDA will be adjusted downward (upward) by the cumulative excess (shortfall) in cash inflows from multilateral and bilateral creditors, and commercial borrowings and bond issuances relative to the projected inflows (Table 1) and evaluated at the program exchange rate. As in the case for NIR, the upward adjustment of the ceiling on NDA will be limited to the same maximum adjustor limit set for NIR evaluated at the program exchange rate.

B.3. Ceiling on SBP’s Stock of Net Foreign Currency Swap/Forward Position

15. The stock of net foreign currency swap/forward positions is defined as the aggregate net positions in forwards and futures in foreign currencies of the SBP vis-à-vis the domestic currency (including the forward leg of currency swaps). It will be evaluated at the program exchange rate.

B.4. Ceiling on the General Government Primary Budget Deficit Excluding Grants

Definition

16. The general government primary budget deficit (excluding grants) is monitored quarterly as the general government’s overall budget deficit (excluding grants) minus the consolidated interest bill of the federal and provincial budgets.

17. The general government overall budget deficit (excluding grants) is measured as the cash deficit from below the line, defined as the sum of:

a. net external budget financing, excluding valuation changes, with foreign currency disbursements/payments converted into PRs at the actual exchange rates applied to each transaction;

b. change in net domestic credit from the banking system (cash basis), excluding valuation changes from deposits denominated in foreign currency and government securities bought by non-residents (notably T-bills, Pakistan Investment bonds (PIBs), Naya Pakistan Certificates, and Banao Certificates);

c. change in the net domestic nonbank financing, excluding valuation changes. These comprise: (i) privatization receipts (either received directly or transferred from the privatization accounts to the general government budget, including from abroad and in foreign currency); (ii) change in the stock of issued government securities held outside the general government and the banking system, net of valuation changes; (iii) change in net deposits and reserves received by the general government (public accounts deposits); (iv) any other government borrowing from domestic nonbank sources net of repayments; minus (v) change in general government deposits with nonbank financial institutions;

d. total external grants to the federal and provincial governments, which are defined as the sum of project grants, cash external grants for budgetary support, capital grants reflecting the principal amounts of external debt cancellation or swaps, and other grants. External grants in foreign currencies are converted into PRs at the actual exchange rates applied to each transaction.

18. Net external budget financing (excluding valuation changes and all external financing counted as reserve liabilities of the SBP, as defined above) is defined as the sum of:

a. external budget loans to the general government, including those on-lent to financial institutions and companies (public or private) and external emergency relief lending. It comprises those with: (i) medium- and long-term maturity from official multilateral sources (including IMF budget support), official bilateral sources, and private sector sources (e.g., bonds and non-residents’ purchases of PIBs, Naya Pakistan Certificates, and Banao Certificates); and (ii) short-term maturity, net of foreign portfolio investment excluding non-residents’ purchases of Naya Pakistan Certificates and Banao Certificates but including non-residents’ purchases of domestic T-bills;

b. net external debt amortization flow of the general government, which is the change in its stock of external debt service arrears net of the debt amortization due on its external budget loans (with the latter accounting for the impact of any rescheduled, relieved, or accelerated amortization, including that related to debt swaps or debt cancellation recorded as capital grants).

Adjustment mechanism

19. The ceiling on general government primary budget deficit (excluding grants) for the end-December 2023 test date will be adjusted on a cumulative basis since the beginning of the fiscal year:

a. downward (upward) by any shortfall (excess) in external project financing during the period October-December 2023 relative to the program projections (US$664 million for October-December 2023) evaluated in Pakistani rupee terms at actual average quarterly exchange rates. For avoidance of doubt, no adjustment will be made for the period July-September 2023 (actual external project financing US$333 million). External project financing is defined as disbursements from bilateral and multilateral creditors to the general government for specific project expenditure;

b. downward by any underexecution in the targeted cash transfers (BISP) relative to their indicative program targets (PRs 185.5 billion for July-December 2023);

c. downward by any excess in the flow of power sector payment arrears above the respective indicative program targets (PRs 385 billion for July-December 2023), excluding non-recoveries (relative to the projection of PRs 255 billion for July-December 2023) and excess line losses (relative to the projection of PRs 76 billion for July-December 2023).

d. downward by any excess in the flow of tax refund arrears (as defined below) relative to their respective indicative program targets (PRs 43 billion for June-December 2023).

B.5. Ceiling on Net Government Budgetary Borrowing from the SBP

Definition

20. Net government budgetary borrowing from the SBP (including provincial governments) is defined as SBP claims on the general government minus general government deposits with the SBP. Those claims include government securities, treasury bills, treasury currency, and debtor balances, whereas those claims exclude accrued profits on government securities. Government deposits with the SBP exclude the Zakat Fund.

B.6. Ceiling on the Amount of Government Guarantees

21. The ceiling on the amount of government guarantees applies to the stock of publicly guaranteed debt for which guarantees have been issued by the central government. It includes both domestic and external government guarantees. External government guarantees will be converted into Pakistani rupees at the program exchange rate. This ceiling excludes guarantees issued by the Ministry of Finance for the SBP borrowing from the IMF.

B.7. Floor on Targeted Cash Transfers Spending (BISP)

22. The floor on targeted cash transfers spending (BISP) applies to the cumulative targeted cash transfers spending by the Benazir Income Support Program (BISP), i.e., all spending on BISP programs.

C. Continuous Performance Criteria

C.1. No New Flow of SBP’s Credit to General Government

23. To protect the capability of the central bank to pursue its price stability objective, there should be no new flow of SBP’s direct credit to the general government, including in the form of purchases of public debt securities on the primary market. The performance criterion applies on a continuous basis throughout the program period.

C.2. Zero Ceiling on the Accumulation of External Payment Arrears by the General Government and SOEs

24. External payment arrears are defined as all unpaid debt-service obligations (i.e., payments of principal and interest) of the general government (federal and provincial government, and SBP), and state-owned enterprises to nonresidents arising in respect of public sector loans, debt contracted or guaranteed (including unpaid penalties or interest charges associated with these obligations that are beyond 30 days after the due date). The definition of debt, for the purposes of the SBA, is set out in 8 of 2020 Guidelines on Public Debt Conditionality in Fund Arrangements. The ceiling on the accumulation of external payment arrears is set at zero. The performance criterion applies on a continuous basis throughout the program period.

C.3. Other Continuous Performance Criteria

25. During the program period, Pakistan will not:

a. impose or intensify restrictions on the making of payments and transfers for current international transactions;

b. introduce or modify multiple currency practices (MCPs) excluding those MCPs arising from the introduction and/or modifications of the multiple-price foreign exchange auction system operating in line with IMF staff advice with the objective of supporting flexible market-determined exchange rate;

c. conclude bilateral payment agreements that are inconsistent with Article VIII of IMF Articles of Agreement;

d. impose or intensify import restrictions for balance of payments purposes.

D. Indicative Targets

D.1. Floor on General Government Budgetary Health and Education Spending

26. The floor on the general government budgetary health and education spending will apply to the cumulative budgetary spending on health and education by the federal and provincial governments.

D.2. Floor on Net Tax Revenues Collected by the Federal Board of Revenue (FBR)

27. Net tax revenues collected by the FBR are defined as the sum of revenues collected from: (i) general sales tax (GST) on goods (including GST on services collected in Islamabad Capital Territory); (ii) customs duties, customs registration fees and levies; (iii) excise duties on imported products; (iv) excise duties on domestic products; (v) levies (toll) on oil derivatives; (vi) other proceeds and fees; (vii) sales tax; and (viii) unclassified revenues (including income tax) minus the tax refunds. Net revenue collection is defined, for each test date, as the cumulative sum of net revenues collected since the beginning of the respective fiscal year. The floor on the collection of net revenues by the FBR is measured quarterly based on cumulative end-of-quarter data.

D.3. Ceiling on Net Accumulation of Tax Refund Arrears

28. The ceiling on the net accumulation of tax refund arrears applies to the cumulative flow of tax refund arrears. The stock of tax refund arrears is defined as the amount of tax refund claims that have not been settled (through a cash refund, netting out against obligations of taxpayers, payment with a government bond/promissory note or an official decision to reject the claim) within a specified time period after the tax refund claim has been submitted to the FBR. The stock of income tax refund arrears is PRs 215.2 billion as of end-May 2023, and the net accumulation of income tax refund arrears will be counted from the starting point of PRs 215.2 billion; the stock of sales tax arrears at end-May 2023 is PRs 183.8 billion, and the net accumulation of sales tax refund arrears will be counted from the starting point of PRs 183.8 billion.

D.4. Ceiling on Power Sector Payment Arrears

29. Power sector payment arrears are defined as power sector payables in arrears that arise from: (i) non-recoveries from supply to Azad Jammu and Kashmir (AJ and K), industrial support package, other federal and provincial governments including FATA, private consumers, and Baluchistan Tube Wells; (ii) accrued markup from the servicing of PHPL; (iii) line losses and non-collections that are not recognized by NEPRA; (iv) GST non-refunds,; (iv) late payment surcharges; (v) delays in subsidy payments; and (vi) delays in tariff determinations.

PROGRAM REPORTING REQUIREMENTS

30. To effectively monitor the program performance, the authorities will provide all the needed data to the IMF in line with Article VIII, Section 5 of the IMF Articles of Agreement as deemed necessary. Performance under the program is monitored from data supplied to the IMF by the SBP, Ministry of Finance, FBR, Pakistan Bureau of Statistics, Ministry of Energy (Power and Petroleum Division), and other agencies as outlined in Table 2 below. Irrespective of the requirements outlined in Table 2, the authorities will report on an ongoing/continuous basis any non-observance of continuous PCs. The authorities will transmit promptly to IMF staff any data revisions as well as other information necessary to monitor the arrangement with the IMF.

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Table 1. Pakistan: Projected Disbursements
(Millions of U.S. dollars)
FY24
Jul-Sep 2023 Oct-Dec 2023
Est. Proj.
Multilateral and bilateral disbursements 3,832 5,893
of which: in cash 1/ 3,693 5,647
of which: Saudi oil facility and IDB commodity loans 400 350
of which: project support 333 664
of which: sales of state-owned assets 0 0
International bond issuance 2/ 28 0
Commercial borrowing 0 600
Other 0 0
Gross inflows 3,860 6,493
of which: in cash 3,721 6,247
memo: New loans/deposits at SBP 3/ 1,000 0
!2

!1
Table 2. Pakistan: Monitoring and Reporting Requirements
Reporting Type of Data Description of Data Frequency Timing
Agency
State Bank of SBP balance sheet Summary Weekly First Thursday of the
Pakistan following week
(SBP) SBP balance sheet Summary at program exchange rates; and by Monthly Within 15 days of the
official exchange rates end of each month
Monetary survey Summary banking system balance sheet for the Monthly Within the first
central bank at both program exchange rates and 30 days of each
by chart of accounts at actual official exchange month.
rates; the consolidated balance sheet of commercial
banks at actual official exchange rates
International By (i) program exchange rates; and (ii) at actual Daily The following working
reserves official exchange rates. day
International Inflows/outflows into/out of Naya Pakistan Daily The following working
reserves Certificates. day
Foreign exchange Market exchange rates (buying and selling); Daily/ Within one day/
market weighted average customer exchange rate; monthly Monthly monthly within five
trade volume, and high and low exchange rate of working day
the interbank, the KERB market.
Foreign exchange SBP foreign exchange operations, and intervention Daily Within one day
market (volume), distinguishing within spot transactions
the outright purchase/sale and purchase/sale
related to forward contract
Foreign exchange SBP operation against the domestic currency in Daily Within one day
market swap/forwards by (volumes)
Foreign exchange SBP operations against the domestic currency in Daily Within one day
market swap/forwards (including all legs of transactions):
for each day, the initial outstanding FX
swap/forward position, summary of transactions
during the day, the end-of-day position
Foreign exchange Interbank market transactions in the spot market Daily Within one day
market for US dollars: total value transacted in US$, total
number of transactions, number of banks involved
in transactions, average value transacted in US$
(simple mean, untrimmed), weighted average price
transacted (untrimmed), simple average price
transacted (simple mean, untrimmed), standard
deviation of values transacted (untrimmed), and
standard deviation of prices transacted
(untrimmed).
State Bank of Foreign exchange Interbank market transactions in the forward Daily Within one day
Pakistan market market for US dollars: total value transacted in US$,
(SBP) total number of transactions, number of banks
involved in transactions, average value transacted
in US$ (simple mean, untrimmed), standard
deviation of values transacted (untrimmed),
average maturity (simple mean, untrimmed),
standard deviation of maturity (untrimmed).
Foreign exchange Aggregate customer transactions of commercial Weekly Third working day of
market banks, with breakdown into gross sales and the following week
purchases.
Foreign exchange Breakdown of short, long, counterparts, of the Daily Within one day
market swap/forward contracts
Foreign exchange Outstanding swap/forward positions by maturity Monthly Third working day of
market buckets, and counterparties. the following month
Net International Net International reserves at program exchange Quarterly Seventh working day
Reserves rates as defined in TMU, including a breakdown by after quarter end
currency and specification of nostro balances with
foreign branches of National Bank of Pakistan.
External financing Foreign assistance received and projections for the Quarterly Within 15 days of the
coming four quarters. Please categorize all grants end of each quarter
and loans by program/project, and the amounts
received/expected in cash.
Interbank money Daily interbank repo volume and interest rate of Daily Within one day
market trades
SBP operations Repo (reverse repo) operations, open market Weekly First Monday of the
operations following week
Bank liquidity Excess reserves, in local currency Bi-weekly With a lag of 15 days
T-bill and coupon Auction data: date, original and remaining Fortnightly Last working day of
bond financing, SBP maturities, issuance volume, allocation, average the fortnight
securities yield and coupon yield (if available)
Banking data Sectoral distribution of loans and deposits; loans Monthly Within 25 working
and deposits by local and foreign currency; deposit days of the end of
and lending rates, disaggregated between new each month
operations and outstanding stock
Banking data Loan maturities Quarterly Within 45 days of the
following quarter
Banking data Regularity capital deposit requirement deposits of Monthly Within 15 days of the
foreign and domestic schedule banks with the SBP end of each month
(account numbers 33052 and 330506)
State Bank of Banking indicators Core Financial Stability Indicators (FSIs), including Quarterly Within 45 days of the
Pakistan but not limited to capital adequacy; asset following quarter
(SBP) composition and quality; profitability; liquidity;
open FX positions ­ in aggregate and bank-by-
bank (without names)
Banking indicators Liquidity data and deferred/restructured loans Weekly Within 5 days of the
end of each week
Banking data Banks’ net open foreign exchange positions split Monthly Within five days of the
between total foreign assets and foreign exchange end of each month
liabilities: in aggregate for the system and bank by
bank (without names, but with consistent identifiers
across datasets)
Banking data Holdings of government securities ­ in aggregate Monthly Within 7 days of the
and bank-by-bank (without names, but with end of each month
consistent identifiers across datasets)
Banking sector Results of stress tests on exchange rate, liquidity, Quarterly Within 60 days
stress tests and credit risk
Transfers Workers’ remittances. Monthly Within 25 days of the
following month
Other monetary The SBP survey, ODCs and DCs published in IFS. Monthly Within 45 days of the
data end of each month
SBP refinance Outstanding position under SBP refinance schemes Monthly Within 25 days of the
schemes (by program) end of each month
Balance of payments Detailed export and import data Monthly Within 28 days of the
Detailed balance of payments data end of each month
Privatization Balance on the PC Fund account; gross inflows into Quarterly Within seven days of
receipts and outflows from the PC Fund account during the the end of each
month, specifying the nature of each transaction quarter
Ministry of External debt Disbursements and stock of outstanding short-term Monthly Within 25 days of the
Finance and contracting or guaranteeing and outstanding following month
(MOF) stock of medium-and long-term external debt of
the government, the SBP, and state-owned
companies; any stock of arrears on external debt
service and outstanding stock of government
guarantees and external arrears.
External financing Foreign assistance received and projections for the Quarterly Within 15 days of the
coming four quarters. Please categorize all grants end of each quarter
and loans by program/project, and the amounts
received/expected in cash and in kind.
External financing List of all disbursements and amortization Quarterly Within 25 days of the
payments for external budget financing and end of each quarter
external grants (above US$3 million or equivalent),
including date of the transaction, foreign currency
amount, exchange rate applied, rupee amount
credited, creditor (or donor agency).
Ministry of Domestic financing Gross disbursements and amortization of Naya Quarterly Within 25 days of the
Finance Pakistan Certificates by residents. end of each quarter
(MOF) Domestic debt Domestic debt composition Monthly Within 25 days of the
end of each month
Domestic debt T-Bill and PIB Bid sheet from domestic debt Daily Within 1 day of each
auctions T-Bill and PIB auction
Federal government State budget Monthly Within 30 days of the
end of each month
Federal government Government guarantees – issued and executed Quarterly Within 15 days of the
(reported separately). Name of entity receiving the end of each quarter
guarantee and the value of the guarantee.
Consolidated Federal and provincial governments (including Quarterly Within 45 days of the
general government fiscal outcomes broken down by province) end of each quarter
Consolidated Federal and provincial governments Annual Within 180 days of
general government the end of each year
Federal government Fiscal financing sources: Detailed quarterly Monthly One month in
financing plan for the coming 12 months including advance
projections for domestic public securities (issuance
and maturities), external financing, SBP profits,
short-term borrowing, other financing schemes,
and borrowing from the SBP.
General government Total general government budgetary spending on Monthly Within 15 days of the
health and education broken down into spending end of each month
by the federal and provincial governments
Federal government Stock of government borrowing from the SBP Quarterly Within the first five
days of each quarter.
Pakistan SPI, CPI, WPI Detailed monthly price indices Monthly Within five days of the
Bureau of following month
Statistics CPI Index of core inflation Monthly Within 21 days of the
(PBS) end of each month
Federal Board Revenue collection Total revenue collected separately by the tax Monthly Within seven days of
of Revenue Tax credits administration and customs administration, the end of each
(FBR) including revenue by individual tax, and social month
contributions.
Tax arrears By category Monthly Within seven days of
each month
By type of tax Monthly Within seven days of
the end of each
month
All tax refund claims Itemized by tax category (GST, income, customs Monthly Within seven days of
in arrears duties, etc.) the end of each
month
Federal Board Detailed data, by type of tax, of outstanding tax Quarterly Within seven days of
of Revenue Automated GST credits for all types of tax revenues the end of each
(FBR) refunds month
Number of refunds that were processed Quarterly Within seven days of
automatically (share of total refunds); total value the end of each
of automated and automatic refunds and offsets; month
average waiting time (days) to receive refund
Large taxpayers Data on the number of taxpayers and amount of Quarterly Within seven days of
taxes managed by the large taxpayer units (LTUs) the end of each
month
Import data Total value of recorded imports Quarterly Within 30 days of the
Total value of duty-paid recorded imports; end of each quarter
Number of total transactions involving recorded
imports;
Number of total transactions involving nonduty
free recorded imports
Audits Percentage of selected companies and identified Quarterly Within 45 days of the
revenue from audits end of each month
(monthly data
provided on a
quarterly basis)
Ministry of Key Power Sector Statistics (Please see the Quarterly Within 30 days
Water and attached template)
Power Cumulative Monthly Subsidy Position (Rs. Billion)
PEPCO Month End Payables and Receivables
Positions And Aging Schedule, PR. Billion
Receivables Positions – Total and DISCO-wise
Break-up
CPPA/PEPCO Month-wise Consolidated Cash Flow
ATandC Statistics
Monthly TDS Claims by DISCOs and Total
Inter Corporate Circular Debt Sheet Prepared by
Ministry of Finance
DISCOs Consolidated Income Statement
Net Electrical Output and Power Purchase Price by
Source, GWh
Generation, Demand and Shortfall for FY10 to
date
Net Electrical Output (MkWh) Plant and Fuel-wise
Detail
Working Capital Loans For each loan type
Quantitative target Quarterly quantitative targets for each DISCO for Quarterly Within 30 days from
on performance of technical and distribution losses, collection from the end of the quarter
DISCOs current consumers and recoveries of arrears.
Domestic Energy arrears (stock) Quarterly Within 45 days of the
expenditure arrears Flow of arrears by source end of each month for
government arrears
Determined and Notified Tariff’s for each User Annual Within 30 days of
and User Group (Please see template) determination and
notification
Ministry of Gas supply by consumer category Quarterly on Within 60 days from
Petroleum Gas sales by consumer category monthly the end of the quarter
and Natural frequency
Resources Gas prices by consumer category Biannually Within 30 days of
price notification.
UFG losses Quarterly Within 60 days from
the end of the quarter
BISP Targeted cash Coverage (number of beneficiaries paid) and Quarterly Within 30 days from
transfers payment by all BISP programs. the end of the quarter
Ministry of Financial statements Financial statements (cash flow, income Quarterly Within 30 days from
Finance statement, and balance sheet) and operational the end of the quarter
indicators for Pakistan Railways, Pakistan Steel
Mills and Pakistan International Airline
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FIRST REVIEW UNDER THE STAND-BY ARRANGEMENT, REQUESTS FOR WAIVERS OF APPLICABILITY OF PERFORMANCE CRITERIA, MODIFICATION OF PERFORMANCE CRITERIA, AND FOR REPHASING OF ACCESS SUPPLEMENTARY INFORMATION, AND SUPPLEMENTARY LETTER OF INTENT

This supplement provides an update on recent economic developments and program performance since the issuance of the report on December 21, 2023, as well as on political assurances received. The update does not alter the thrust of the staff appraisal.

1. Recent economic developments are broadly in line with expectations. Headline inflation remained high in December at 29.7 percent (yoy), mostly due to the recent increase in electricity tariffs, however, core inflation eased slightly to 21 percent (from 21.5 percent a month earlier). The improvement in the trade balance also continued, on the back of stronger exports and weak imports through December, with customs data showing total imports of US$26.1 billion in FY24H1 (down from US$31.2 billion in FY23H1). On the back of disbursements by IFIs and continued SBP purchases, gross reserves climbed to US$8.2 billion at end-December (from US$7 billion at end-November), while the rupee has remained stable at around 282 PRs/USD and the premium between interbank and open market rate continued to be negligible.

2. The authorities have continued the strong performance against program targets. Information has become available on:

One performance criterion (PC) for end-December 2023. The SBP’s stock of net foreign currency swaps/forward position for end-December 2023 was met (-US$3,423 million against a target of -US$4,000 million).

Three structural benchmarks (SBs) for end-December 2023. The SBs on (i) issuance by the Central Monitoring Unit (CMU) of its first periodic report on SOE performance; (ii) the submission to parliament of amendments to the bank resolution and crisis management framework; and (iii) cabinet adoption of a Climate-PIMA and PIMA action plan have been met.

3. Political assurances. Given the approaching parliamentary elections, and as at the time ahead of Board approval of the authorities’ SBA request in July, IMF staff has met with representatives of Pakistan’s major political parties—Pakistan Muslim League-Nawaz, Pakistan People’s Party, and Pakistan Tehreek Insaf—to seek confirmation of their support for the program. The first two parties expressed written support for the SBA’s key objectives and policies. They also recognized the role that the SBA will play in preserving macroeconomic stability by anchoring policies and supporting external financing over the coming months. The third party, which had also supported the SBA in July, issued a statement noting the importance of free and fair elections to the successful implementation of the Fund-supported program.

4. Against this backdrop, staff supports the authorities’ request for waivers of applicability for all PCs aside from the one on the SBP’s net foreign currency swaps/forward position, and continues to recommend the completion of the review as set forth in the main staff report, the authorities’ December 2023 Letter of Intent (LOI), and the attached Memorandum of Economic and Financial Policies (MEFP) and Technical Memorandum of Understanding (TMU).

Appendix I. Supplementary Letter of Intent

Ms. Kristalina Georgieva

Managing Director

International Monetary Fund

700 19th Street, N.W.

Washington, D.C. 20431

USA

Islamabad, January 8, 2024

Dear Ms. Georgieva:

1. This letter updates our Letter of Intent dated December 18, 2023. Due to the timing of the Executive Board meeting falling after the end-December 2023 test date, we request waivers of applicability for all performance criteria, except on the net foreign currency swaps/forward position of the SBP, as the data for these criteria will not be known before the Executive Board meeting on January 11, and there is no evidence that such performance criteria will not be met. Information on the ceiling on the net foreign currency swaps/forward position of the SBP for end-December 2023 set at the time of the SBA request indicates that the target was met (position of -US$3,423 million). Accordingly, a revised QPC table is included in Table 1.

2. We also take the opportunity to report on structural conditionality commitments. On December 30, 2023, cabinet adopted the Climate-PIMA and PIMA action plan that followed from IMF TA (end-December 2023 SB). In addition, on December 18, 2023, we submitted to the Senate the proposed amendments to the bank resolution and deposit insurance legislation (end-December 2023 SB), which is substantively aligns with IMF TA advice. Finally, the Central Monitoring Unit (CMU) within the Ministry of Finance (MoF) published its first periodic report on SOE performance on December 30 (end-December 2023 SB). A revised table of structural conditionality is included in Table 2.

Sincerely yours,

Dr. Shamshad Akhtar

Minister of Finance and Revenue

Jameel Ahmed

Governor of the State Bank of Pakistan

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Table 1. Pakistan: Quantitative Performance Criteria and Indicative Targets, FY 2023/24 (Revised) 1/
(Billions of Pakistani rupees, at program exchange rates, unless otherwise indicated)
end-September 2023 end-December 2023
Program Adjusted Actual Status Program Proposed Actual Status
CR 23/260 Prog. CR 23/260 (PC)
I. Quantitative Performance Criteria
Floor on net international reserves of the SBP (millions of U.S. dollars) -14,550 -15,673 -13,781 Met -13,800 -13,400 … …
Ceiling on net domestic assets of the SBP (stock, billions of Pakistani rupees) 15,048 15,370 14,410 Met 14,888 14,450 … …
Ceiling on SBP’s stock of net foreign currency swaps/forward position (negative, millions of U.S. dollars) 3/ 4,200 … 3,540 Met 4,000 … 3,423 Met
Ceiling on net government budgetary borrowing from the SBP (stock, billions of Pakistani rupees) 4,708 … 4,380 Met 4,708 4,708 … …
Ceiling on the general government primary budget deficit (cumulative, excl. grants, billions of Pakistani rupees) 2/ -87 -389 -376 Not met -1,232 -1,420 … …
Ceiling on the amount of government guarantees (stock, billions of Pakistani rupees) 4,000 … 3,806 Met 4,050 4,050 … …
Cumulative floor on targeted cash transfers spending (BISP) (billions of Pakistani rupees) 87.5 … 89.8 Met 185.5 185.5 … …
II. Continuous Performance Criteria
Zero new flow of SBP’s credit to general government 0 … 0 Met 0 0 … …
Zero ceiling on accumulation of external public payment arrears by the general government 0 … 0 Met 0 0 … …
III. Indicative Targets
Cumulative floor on general government budgetary health and education spending (billions of Pakistani rupees) 465 … 482 Met 1,031 905 … …
Floor on net tax revenues collected by the FBR (cumulative, billions of Pakistani rupees) 1,977 … 2,042 Met 4,425 4,425 … …
Ceiling on net accumulation of tax refund arrears (cumulative, billions of Pakistani rupees) 32 … -15 Met 43 43 … …
Ceiling on power sector payment arrears (cumulative flow, billions of Pakistani rupees) -155 … 227 Not Met 64 385 … …
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Table 2. Pakistan: Structural Conditionality (Revised)
Actions
Structural Benchmarks Date Status
Fiscal
1 Commit to not grant further tax amnesties. Continuous Met.
2 Avoid the practice of issuing new preferential tax treatments or exemptions. Continuous Met.
3 Issuance by the Central Monitoring Unit (CMU) of its first periodic report on the performance end-Dec. 2023 Met.
of SOEs, using latest available data, to the Federal Government.
Social
4 Inflation adjustment of the unconditional cash transfer (Kafaalat). end-Jan. 2024 In progress.
Monetary and Financial
5 Average premium between the interbank and open market rate will be no more than 1.25 Continuous Not met.
percent during any consecutive 5 business day period.
6 Submission to parliament of amendments to align Pakistan’s early intervention, bank end-Dec. 2023 Met.
resolution, and crisis management arrangements with international good practices, in line with
IMF staff recommendations.
Energy Sector and State-Owned Enterprises
7 Notification of the annual rebasing (AR) for FY24 to take effect on July 1, 2023. end-Jul. 2023 Met.
8 Improve state-owned enterprise (SOE) governance by: (i) operationalizing the recently end-Nov. 2023 Not met.
approved SOE law into a policy that clarifies ownership arrangements and the division of roles
within the federal governments; and (ii) amending the Acts of four selected SOEs to make the
new SOE law fully applicable to those SOEs.
Climate
9 Cabinet adoption of a Climate-PIMA and PIMA action plan. end-Dec. 2023 Met.
Economic Statistics
10 Compilation and dissemination of Quarterly National Accounts for FY24Q1 and revised annual end-Nov. 2023 Met.
estimates for FY23.
New Structural Benchmarks
1 Notification of the December 2023 semiannual gas tariff adjustment determination. February 15, 2024
2 Develop a plan to strengthen internal control systems in lending operations, including updates March 8, 2024
to collateral policy and counterparty eligibility policy, in line with recommendations from the
2023 Safeguards Assessment.
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Statement by Mr. Bijani and Mr. Dogar on Pakistan

January 11, 2024

On behalf of our Pakistani authorities, we thank the mission team, ably led by Mr. Porter, for its constructive engagement to complete the first review under the Stand-By Arrangement. The authorities also extend their gratitude to the management and the Executive Board for their continued support for Pakistan’s reform efforts. They further express their deep appreciation to Pakistan’s bilateral creditors, friendly countries, and multilateral development partners for their continued support for Pakistan.

I. Introduction

In July 2023, the authorities successfully transitioned from an on-going EFF arrangement into a 9-month SBA which was more suited to the economic realities and financing challenges facing Pakistan. The interim caretaker government that was installed in August 2023 has ensured steadfast implementation of decisions to achieve the targets agreed under the SBA. Pakistan continues to face serious challenges, including those associated with the political transition, increasing geo-political conflicts, elevated external risks, and climate vulnerabilities However, due to resolute implementation of reforms under the SBA, supported by external inflows, confidence is returning, and the economy is recovering.

The program is on track. All except one end-September 2023 quantitative performance criteria (QPCs) and almost all indicative targets (ITs) were met. The program over-performed in several key areas (e.g., NIR floor, NDA ceiling and the SBP’s forward/SWAP target) that was locked in by revising targets the end-December targets. In cases where program targets were missed, the deviations were temporary and small, and the authorities have already begun taking corrective action to return to the agreed path. The QPC on general government primary deficit was missed by a small margin due to exchange rate valuations. The deviation on the IT on power sector payment arrears was due to the annual rebasing approved by the regulator which was considerably below the petition submitted by the Power Ministry, and although the quarterly target was missed the annual target is expected to be met. To ensure that the average premium between the interbank and open market exchange rate remains within the agreed range, the authorities
have initiated structural reforms in the exchange companies sector that will improve governance and transparency.

II. Recent Economic Developments and Outlook

The macroeconomic stabilization measures have started bearing fruit and helped in unlocking financing from multilateral and bilateral partners. Economic activity is recovering moderately, inflation is declining gradually, and the external position is strengthening materially, and external buffers are being built. The overall real GDP growth in FY2023 is projected to be more tepid than expected initially mainly due to stabilization policies of the government, flood damage and a slower global economic activity. Growth has, however, picked up in recent months and for FY2024 is projected to be broad-based and in the range of 2.5-3.0 percent. Headline inflation has proven to be sticky primarily because of the first-round and second-round increases in energy prices. The current account deficit during July-November 2023 narrowed down to US$1.2 billion against US$3.3 billion in the corresponding period in the FY23 despite the withdrawal of import prioritization instructions in June.

III. Fiscal Policy and Debt Sustainability

Fiscal policy is supportive: A substantial increase in revenues compared to expenditures brought down the fiscal deficit to 0.8 percent of GDP (PRs 861.7 billion) in Jul-Oct FY24 from 1.5 percent of GDP (PRs1265.8 billion) last year. The sharp rise in revenues has been largely attributed to considerable improvement in non-tax revenues that grew by more than 300 percent during this period. In absolute terms, it increased to PRs 1586.5 billion against PRs 346.4 billion last year. This growth in non-tax collection has been observed across all major heads, indicating a broad-based increase. Similarly, receipts from Federal Board of Revenue (FBR) tax collections grew by 29 percent to PRs 2748.4 billion against PRs 2138.7 billion last year. The net provisional FBR tax collection maintained its momentum with 29.6 percent growth to reach PRs 3484.7 billion during Jul-Nov FY24 from PRs 2688.4 billion last year. Within total, domestic tax revenues grew by 32 percent driven primarily by a 62.8 percent surge in FED and a
42.2 percent rise in direct taxes. Total expenditures grew by 35 percent to stand at PRs 3706.7 billion during Jul-Oct FY24 against PRs 2737.2 billion last year. Within total, current spending grew by 44 percent mainly due to a significant rise in markup payments that increased by 63 percent during the first four months of the current fiscal year, while non-markup spending witnessed a restricted growth of 19 percent on account of the government’s cautious expenditure management strategy.

The primary balance, from July to November posted a surplus of PRs 1542 billion against PRs 511 billion in the corresponding period. The government is on track to achieve the targeted primary surplus of 0.4 percent of GDP in FY24. This fiscal consolidation is supporting monetary policy to bring inflation down to it medium-term target. With the improvement in the fiscal balances and sustainable economic growth, the GFN to GDP ratio is expected to decline and the authorities are continuing their efforts to reprofile the domestic debt by issuing long term bonds and reducing issuance of short-term instruments. Staff assesses the public debt as sustainable in the baseline case scenario.

As far as the external financing plan for FY24 is concerned, external inflows during July-December 2023 have been substantial and as per plan. Total of US$ 5.1 billion of external inflows are expected by end Dec 2023. This excludes US$ 4.0 billion of bilateral rollover. The inflows mainly represent the inflows from multilateral and bilateral sources. However, no debt from private sector was obtained i.e., foreign commercial bank loans and Eurobonds. In July, the authorities had a bilateral debt rearrangement of US$ 2.4 billion for FY24 and FY25 which created cushion. The budgeted inflows from foreign commercial banks (US$ 3.5 billion) and international capital markets (US$ 1.5 billion) seem unlikely to be materialized, but it is planned to mobilize US$ 0.5-1.0 billion from foreign commercial banks as new financing. In addition to that, government is making efforts to meet the remaining target of US$ 3.5 billion, however, it seems unlikely that this target will be met during second half of FY24. Out of US$ 3.5
billion, it is expected that authorities will be able to mobilize around US$ 0.5 billion to US$ 1.0 billion. The authorities budgeted US$ 1.5 billion through international capital markets that will only be considered once feasible.

The authorities remain committed to completing necessary actions to ensure that multilateral program loans in pipeline for disbursed January-June 2024 are disbursed on time. During July3 December 2023, reforms undertaken by government led to the disbursement of US$ 350 million from World Bank under RISE II program, and US$ 300 million and US$ 100 million from Asian Development Bank under Domestic Resource Mobilization and Women Inclusive programs, respectively. In addition, US$ 250 million was disbursed by the Asian Infrastructure Investment Bank.

Government remains committed to ensure adherence to program targets on government guarantees for end-September 2023 and end-December 2023. Currently, guarantees are issued on priority basis and within the program limits. By April 2025, the Debt Management Office will design and implement a framework for the management of guarantees in line with the Fiscal Responsibility and Debt Management Rules and will carry out the assessment of three state-owned enterprises under this framework.

IV. Monetary, Exchange Rate and Financial Sector Policies

A tight monetary policy stance and a supportive fiscal policy are helping inflation to come down. Headline inflation peaked at 38 percent in May 2023, has been declining trajectory since then and, barring any major supply shocks, is expected to fall within the SBP’s 5-7 percent target range during FY26. This assessment is based on the following key determinants of inflation: (i) real interest rates are significantly positive on forward looking basis; (ii) Growth in monetary aggregates is decelerating; (iii) consumers and businesses inflation expectations are declining significantly; (iv) wage growth is moderating; and (v) global commodity prices are declining. The output gap is estimated to remain negative for the second consecutive year in FY24, and while the demand side remains constrained amid tighter financial conditions, the supply side has improved following flood recovery and better availability of imported goods.

The reduction in current account deficit has enabled the SBP to meet the NIR target with a

sizable margin and reduce its forward book. Interbank FX flows were weak but subsequently

improved, especially from September amidst the alignment of the interbank and open market

exchange rates. The inflows helped stabilize the SBP’s FX reserves around US$7.5 billion as of

October 20, 2023, which in turn garnered confidence. The wedge between the interbank and open

market exchange rates has narrowed and the money markets have adequate liquidity. Reforms of

exchange companies introduced in early September, coupled with measures against illegal FX

activities, also helped improve FX market sentiments and liquidity.

The banking sector remains well-capitalized and profitable with improving solvency ratios. The capital adequacy ratio strengthened and NPLs, while increasing slightly, remained well provisioned. The SBP is actively engaged with undercapitalized private sector banks for early capitalization, while one of the public sector banks is being wound down in an orderly manner. To strengthen the resolution regime, draft amendments to The Banking Companies Ordinance of 1962 and The Deposit Protection Corporation Act of 2016 have been submitted to the cabinet for approval. The authorities remain committed to enhancing the stability of the banking sector and deepening the financial system.

V. Energy Sector Policies

Energy (Power and Gas) sector reform has remained a major fiscal challenge. In August 2023, pursuant to 9th review of the EFF, the cabinet adopted the Revised Circular Debt Management Plan (CDMP), containing measures amounting to 0.2 percent of the GDP in FY24. For FY 24, no increase in CD stock is projected in the approved CDMP. The measures taken by the authorities helped catch up with the deferred tariff adjustments and permanently expanded the base and level of debt service surcharge. In the gas sector, to halt the sharp increase in circular and to avoid burdening the budget with additional subsidies, prices were increased by 50 percent, on average, as determined by the regulator, and the tariff slab system was updated.

VI. Social Protection and Social Sector Expenditure

The cumulative floor on targeted cash transfers spending (BISP) is PRs 185.5 billion. The Q1 floor on targeted cash transfers has been met and the process is on track for meeting the upcoming quarterly targets. MoF has formed an Indexation Committee to ensure that the stipends are inflation adjusted. In addition, the dynamic registry for regular/periodical NSER (spell it out) is now fully updated and is operational across the country. The enrolment in both CCTs (spell it out) is being expedited. In FY24, the enrolment target of 1.2 million new children is set for education CCT (Benazir Taleemi Wazaif) and 0.8 million new families for health and nutrition CCT (Benazir Nashonuma). The payments are being made through real time biometric based payment mechanism. BISP is working on further improving the existing system to make it beneficiary centric and to ensure that the payments are made in a transparent and efficient, manner. BISP has the capacity to respond to any disaster contingent on fiscal availability and
can quickly roll out financial assistance in case of future shocks with the help of NSER database and an electronic based payment mechanism. MoF has earmarked a reserve of PRs 250 billion for emergencies.

VII. Climate Change

The federal cabinet approved the National Action Plan (NAP) for climate in August 2023. To harmonize and align the efforts at all tiers of governments, corresponding policy and implementation frameworks are being developed at sub-national and district levels in consultation with multilateral development partners. Avenues to forge investment partnerships with the private sector are also being explored.

The Resilient Recovery, Rehabilitation and Reconstruction Framework Pakistan (4RF) document was developed by the Ministry of Planning, Development and Special Initiatives in close coordination with Economic Affairs Division. The authorities will prioritize “no-regret” measures, including resilience-boosting policies, notably social protection, build-back-more resilient infrastructure destroyed during the recent floods through the 4RF framework, executing the updated 2015 National Flood Protection Plan, and transforming the agri-food industry (as laid out in the World Bank’s 2022 Country Climate and Development Report (CCDR) for Pakistan). The Ministry of Climate Change is also coordinating the flood early warning system and other pre-emptive actions as a part of a development project.

Climate sensitive cost centers in each demand are being identified and tagged in the FMIS system. During the first phase, 85 percent of the demands in the federal government were identified and tagged for the green component of budget. Climate related spending for FY 2023-24 was published as a part of Performance Based Budgeting Book (Green Book). In addition, a green budget statement was included in the Annual Budget Statement for FY 2023-24. The authorities plan to build on the current tracking exercise to provide more guidance to line ministries in budget call circular (BCC) for FY24-25, and gradually extend tracking to revenue measures; BCC preparation for FY 2024-25 is already underway. More guidance will be provided to line ministries in the BCC on climate budgeting.

VIII. SOE Policy and Other Structural Reforms

The Central Monitoring Unit (CMU) created in September 2022 will monitor and perform oversight functions of the SOEs. It will prepare periodic reports on the performance of the SOEs after conducting thorough analysis of their operations. The process for hiring of professionals from the private sector for staffing the CMU was completed in November 2023 and the new team is already in place. The CMU completed the data collection for the SOE Performance Reports for the last three fiscal years and compiled and published a consolidated report end December 2023, after its approval by the Cabinet Committee on SOEs.

The SOE Policy, a requirement under the SOEs Act 2023, was also developed and implemented at end November 2023 after its approval by the Federal Government. Based on the collated feedback of SOEs, the authorities will consult the Security and Exchange Commission of Pakistan, Law Division, and other relevant stakeholders to coordinate policies on the SOEs under the Act.

Pakistan created a Sovereign Wealth Fund (SWF) in August 2023 with assets from seven large SOEs. To operationalize the SWF, the authorities are consulting stakeholders to ensure legal, corporate, and financial alignment of the participating SOEs. Seven SOEs will be audited by the Auditor General of Pakistan. The authorities are requesting MDBs for technical assistance to advise on operationalization of the SWF, including development of an annual public investment plan and an overall investment strategy to be approved by the Supervisory Council before implementation.

IX. Concluding Remarks

The authorities believe that the performance under the program demonstrates their strong commitment to fiscal discipline, improved functioning of the markets and sustained implementation of complex reforms. The twin deficits are on downward trajectories. The authorities are confident that a significant reduction in the macroeconomic imbalances under the program will lay the foundation for sustainable economic growth well beyond the program.

The authorities believe that their full implementation of the SBA will help neutralize the risks highlighted by staff. Based on the demonstrated performance under the SBA so far, the authorities reiterate our commitment to achieve all program targets agreed under the program and undertake further reforms to improve economic governance despite all socio-political challenges. The Pakistani authorities look forward to continued support from the Executive Board, management, and staff.