REP-300

Pakistan Economy
IMF-Pakistan SBA (2nd & Final review): Country Report
11-May-2024

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IMF - Pakistan SBA Country Report
Macroeconomic conditions signal improvement
• The gradual economic recovery has persisted in recent months, with real Pakistan: Selected Economic Indicators
GDP expanding by 1% YoY in Q2. FY23 FY24F FY25F
GDPg % (0.20) 2.00 3.50
• Headline inflation, while still elevated, declined to 20.7% YoY in Mar’24, CPI %, Average 29.20 24.80 12.70
attributed to favorable base effects, reduced food inflation, and a gradual CPI %, Period end 29.40 19.60 9.50
easing of core inflation. Revenue and grants % of GDP 11.40 12.50 12.40
Expenditure % of GDP 19.20 20.00 19.80
• Following SBP initiatives to enhance pricing transparency in the open
Fiscal Balance % of GDP (7.80) (7.50) (7.40)
market, the FX market has exhibited more normalized functionality.
Primary Balance % of GDP (1.00) 0.40 0.40
• The current account deficit narrowed to approximately USD 1bn during External General Government Debt % of GDP 28.50 26.20 25.00
8MFY24, down from USD 3.8bn in the SPLY, driven by increased exports, Domestic General Government Debt % of GDP 46.20 43.30 43.20

reduced imports, and a partial recovery in remittances. Broad Money % Change 14.2 13.5 22.0
6-Month T.Bills % 18.3 - -
• As of end-Dec’23, banks maintained a healthy capital adequacy ratio of Current Account Balance % of GDP (0.7) (0.8) (1.2)
19.7%, well above the regulatory minimum, and non-performing loans (NPLs) Foreign Direct Investment % of GDP 0.5 0.2 0.3
stood at 7.6%, with provisioning at 92.7%. However, three small banks (two Total External Debt % of GDP 40.1 36.6 34.7
private and one public) continue to report CAR under minimum requirement. Real Effective Exchange Rate % Change (8.0) - -
Source (s): IMF, AHL Research
• Fiscal balances improved due to robust budget execution and revenue
performance, with the general government achieving a primary surplus of
1.8% of GDP in 1HFY24, surpassing projections by 0.4% of GDP. This was
driven by strong revenue streams from PDL, excise, and direct taxes, which
offset lower-than-expected import-related revenues and SBP profits.

• The circular debt stock stabilized in late 2023 and early 2024, supported by
ongoing efforts to align energy tariffs with costs and implement anti-theft
measures in the power sector.

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IMF - Pakistan SBA Country Report
Economic outlook
Fiscal Policy:
▪ Authorities aim to achieve a primary surplus of 0.4% of GDP in FY24.
▪ While FBR revenue targets remain unchanged, there's a risk of shortfalls in April and May 2024 due to
holidays leading to port closures.
▪ FBR has successfully registered 1.1mn new filers, hence 171k new returns.
▪ Authorities reaffirm their commitment to adhere to the overall primary expenditure envelope and avoid
supplementary grants.
▪ Provinces reiterate their commitment to achieving their FY24 budget surplus targets as outlined in their
Dec’23 MoUs with the federal government.
▪ Authorities pledge not to issue any supplementary grants.
▪ Plans to privatize PIA and other assets are underway as part of broader privatization efforts.
▪ The imposition of a ceiling on gov’t guarantees is agreed upon as a crucial measure to mitigate debt
risks outside the general government perimeter.
▪ Pending tax policy reforms include launching a scheme to register retailers and transforming the FBR
into a semi-autonomous Revenue Authority.

Monetary, Exchange Rate, and Financial Sector Policies:

▪ IMF staff endorsed the MPC's decision to maintain policy rates.
▪ Any relaxation of the policy stance should be justified by evidence of declining inflation, controlled pass-
through effects, and limited exchange rate pressures from FX market normalization.
▪ The authorities remain committed to a flexible exchange rate and transparent interbank FX market.
▪ Staff recommended the continued proactive accumulation of reserves through interbank purchases,
noting positively that the reduction of the SBP’s swap/forward position has alleviated forward premia
compression.
▪ It also cautioned that the recent stability of the rupee should not lead to expectations of its persistence in
the future.
▪ Mixed progress was reported on addressing undercapitalized banks, with more progress made in
winding down an undercapitalized public bank while two private banks continue to face
undercapitalization.

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IMF - Pakistan SBA Country Report
Economic outlook
Energy Sector: Timely tariff adjustments, disbursement of budgeted subsidies, and broader reforms are
necessary for the sustainability of the energy sector.

Power:
▪ In power sector, the notification of 2nd quarterly tariff adjustments, a continuation of the anti-theft drive,
and the release of complete budgeted subsidies will help in achieving the circular debt management
plan (CDMP) target of net zero stock accumulation (PKR 2.3tn).
▪ Moving forward, notification of FY25 annual rebasing will be critical for future accumulation of circular
debt.
▪ Authorities should also finalize agriculture tube well subsidy reforms by the end of FY24.
▪ Reforms for the sustainability of the power sector require strong cost-side reforms. The authorities need
to speed up work on i) improving transmission and distribution infrastructure; ii) improving DISCOs
performance via privatization or long-term management concession; iii) moving captive demand to the
national grid; (iv) revisiting terms of PPA, where feasible and v) convert PHPL debt into cheaper public
debt.

Natural gas:
▪ The resumption of gas tariff adjustments contributed a modest decline in natural gas circular debt PKR
2,083bn
▪ Regular implementation of semi-annual tariff adjustments from Jun’24 for the gas sector and notification
of the same within 40 days.
▪ Price adjustments should continue to move towards phasing out captive power usage with cheaper
natural gas available for the most efficient power plants.
▪ Equalize gas prices for all fertilizer companies.
▪ Full implementation of weighted average cost of gas (WACOG) across Pakistan.

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IMF - Pakistan SBA Country Report
Economic outlook
SOEs - Stronger governance, transparency and efficiency

▪ Authorities are implementing SOE Act and SOE policy framework including (i) updating the SOE triage
plan to propose which SOEs are to be retained, privatized and/or restructured; (ii) reviewing required
governance structure; (iii) further amendments for four statutory SOEs; and (iv) issuance of legal
guidelines and training for SOEs on the application of the new framework.

▪ Clarification on the classification and governance arrangements of the seven SOEs under the sovereign
wealth fund. Governance safeguards for these SOEs should be bought on par with the SOE Act.

▪ SIFC must also ensure accountability and transparency while attracting much-needed investment in the
country. The projects identified through SIFC should be under PIMA framework to ensure accountability
and transparency.

▪ Strengthening the effectiveness of anti-corruption institutions

▪ Climate change adaption capacity and resilience

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IMF - Pakistan SBA Country Report
Fiscal Sector
Exhibit: Major components of current expenditure Exhibit: Revenue breakdown
Interest Defense (PKR bn) FBR revenue Tax revenue (PKR bn)
(PKR bn) (PKR bn)
25,000 Total Revenue 26,000
subsidies Current expenditure
12,000 30,000

10,000 28,000 20,000 23,200

8,000 26,000 15,000 20,400

6,000 24,000
10,000 17,600
4,000 22,000
5,000 14,800
2,000 20,000

- 18,000 - 12,000
FY24F FY25F FY26F FY27F FY28F FY29F FY24F FY25F FY26F FY27F FY28F FY29F

Source (s): IMF, AHL Research Source (s): IMF, AHL Research

Exhibit: Development expenditure breakdown Exhibit: Fiscal Deficit and financing

(PKR bn) Federal (PKR bn) (PKR bn) Overall Balance (including grants) External Domestic
Provincial
Development expenditure and net lending 7,000
3,000 4,500
5,000
2,500 4,000 3,000
2,000 1,000
3,500
1,500 (1,000) FY24F FY25F FY26F FY27F FY28F FY29F
3,000 (3,000)
1,000
(5,000)
500 2,500
(7,000)
- 2,000 (9,000)
FY24F FY25F FY26F FY27F FY28F FY29F

Source (s): IMF, AHL Research Source (s): IMF, AHL Research

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IMF - Pakistan SBA Country Report
Monetary and External Sector
Exhibit: Monetary sector components Exhibit: PKR vs. USD
Net foreign assets* Net domestic assets* Average USD/PKR PKR App/ (Dep)
Broad money
25.0% 24.7% 400 0%
379
20.0% 21.6% 380
-2.0% -2.1% 357 -2%
15.0% 18.5% 360
10.0% 15.4% 336 343
340 329 -4.1% -4%
5.0% 12.3% 320
-5.7%
0.0% 9.2% -6%
300 284
FY22A FY23A FY24E FY25F -7.1%
-5.0% 6.1%
280 -8%
-10.0% 3.0% FY24E FY25F FY26F FY27F FY28F FY29F

Source (s): IMF, AHL Research, *Annual changes in % of initial stock of broad money Source (s): IMF, AHL Research

Exhibit: Decomposition of external debt by creditor Exhibit: External debt repayment obligations
(USD bn) FY24 FY25 (USD bn) Long-term Short-term Bonds
6.0 5.6 25.00
5.3
5.0
4.1 20.00
4.0
2.9 3.0 6.02
3.0 15.00 4.02 6.22
5.17 5.54 5.86
2.0 1.6 1.6
10.00
1.0 0.5 0.5
0.2 12.65 12.62
5.00 9.80 10.18 9.78 11.25
-
Multilateral Bilateral Bonds Commercial Other
Creditors Creditors Creditors International -
Creditors FY24E FY25F FY26F FY27F FY28F FY29F
Source (s): IMF, AHL Research Source (s): IMF, AHL Research

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Appendices

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IMF - Pakistan SBA Country Report
General Government Budget (Revenue)
Exhibit: Pakistan: General Government Budget (Revenue)
PKR bn FY24F FY25F FY26F FY27F FY28F FY29F

Revenue and grants 13,362 15,485 17,418 19,445 21,741 24,345

Revenue 13,313 15,424 17,374 19,400 21,694 24,296

Tax revenue 11,302 13,320 15,006 16,755 18,737 20,989

Federal 10,435 12,306 13,865 15,479 17,311 19,394

FBR revenue 9,415 11,113 12,522 13,979 15,633 17,518

Direct taxes 4,597 5,291 5,945 6,642 7,466 8,390

Federal excise duty 561 672 756 850 950 1,063

Sales tax/VAT 3,166 3,855 4,359 4,855 5,407 6,034

Customs duties 1,091 1,296 1,461 1,632 1,809 2,032

Petroleum surcharge 923 1,080 1,215 1,358 1,518 1,698

Gas surcharge 67 78 88 99 110 123

GIDC 30 35 39 44 49 55

Provincial 867 1,014 1,142 1,275 1,426 1,595

Nontax revenue 2,011 2,103 2,368 2,645 2,958 3,307

Federal 1,804 1,861 2,095 2,340 2,616 2,926

Provincial 207 243 273 305 341 382

Grants 49 61 44 46 47 49

Source (s): IMF, AHL Research

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IMF - Pakistan SBA Country Report
General Government Budget (Expenditure)
Exhibit: Pakistan: General Government Budget (Expenditure)
PKR bn FY24F FY25F FY26F FY27F FY28F FY29F
Expenditure 21,283 24,710 25,619 27,582 29,996 33,430
Current expenditure 19,130 22,037 22,610 24,221 26,247 29,238
Federal 14,414 16,712 16,617 17,525 18,760 20,865
Interest 8,371 9,787 8,822 8,817 9,024 9,976
Domestic 7,254 8,517 7,436 7,354 7,483 8,331
Foreign 1,003 1,158 1,287 1,463 1,541 1,645
IMF budget support 115 112 99 - - -
Other 6,158 7,037 7,893 8,708 9,737 10,889
Defense 1,839 2,152 2,422 2,706 3,025 3,383
Other 4,319 4,886 5,472 6,002 6,711 7,505
subsidies 1,396 1,509 1,698 1,897 2,121 2,372
grants 1,272 1,488 1,675 1,871 2,092 2,340
Provincial 4,716 5,325 5,994 6,696 7,487 8,373

Development expenditure and net lending 2,135 2,673 3,009 3,361 3,749 4,192

Public Sector Development Program 2,064 2,590 2,916 3,257 3,632 4,062

Federal 782 890 1,002 1,119 1,242 1,388

Provincial 1,282 1,700 1,914 2,138 2,390 2,673

Overall Balance (excluding grants) (7,970) (9,286) (8,245) (8,183) (8,302) (9,133)

Overall Balance (including grants) (7,921) (9,225) (8,201) (8,137) (8,254) (9,084)

Financing 7,921 9,225 8,201 8,137 8,254 9,084

External 489 1,590 1,446 1,087 210 465
Privatization receipts - - - - - -
IMF (197) (296) (106) (203) (248) (258)
Domestic 7,432 7,635 6,755 7,050 8,045 8,619
Bank 5,203 5,345 4,760 4,996 5,706 6,111
Nonbank 2,230 2,291 1,995 2,054 2,339 2,508
Source (s): IMF, AHL Research

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IMF - Pakistan SBA Country Report
Current Account Balance
Exhibit: Pakistan: Current Account Balance
USD bn FY24F FY25F FY26F FY27F FY28F FY28F

Exports of Goods 31.2 32.6 34.4 36.7 38.9 41.4

Imports of Goods 55.0 60.5 63.7 67.5 71.6 76.2

Balance on Goods (23.8) (27.9) (29.3) (30.8) (32.6) (34.8)

Exports of Services 7.9 8.4 9.0 9.6 10.2 10.8

Imports of Services 9.7 10.5 11.6 12.7 13.9 15.3

Balance on Services (1.8) (2.0) (2.6) (3.1) (3.8) (4.4)

Balance on Goods and Services (32.3) (35.8) (38.4) (41.2) (44.1) (47.2)

Primary Income Credit 1.0 1.0 0.8 0.8 0.8 0.8

Primary Income Debit 7.8 7.0 7.3 8.0 8.4 8.7

Primary Income Balance (6.7) (5.9) (6.5) (7.3) (7.7) (8.0)

Secondary Income Credit 29.7 31.7 33.7 35.6 37.6 39.8

Workers' remittances 28.1 29.9 31.6 33.1 34.5 36.1

Secondary Income Debit 0.4 0.4 0.4 0.4 0.4 0.4

Secondary Income Balance 29.3 31.3 33.4 35.2 37.2 39.4

Current Account Balance (3.0) (4.6) (5.0) (6.0) (6.9) (7.8)

Current Account Balance (% of GDP) -0.8% -1.2% -1.2% -1.3% -1.4% -0.2%

Source (s): IMF, AHL Research

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IMF - Pakistan SBA Country Report
Decomposition of External Debt by Creditor
Exhibit: Pakistan: Decomposition of External Debt by Creditor
Debt Service
Dec'23
USD mn FY23 FY24 FY25
Multilateral Creditors 46,509 5,210 5,581 5,289
IMF 7,596 - - -
World Bank 20,121 - - -
ADB/AfDB/IADB 15,367 - - -
Other Multilaterals 3,425 - - -
Bilateral Creditors 41,689 4,282 4,054 2,923
Paris Club 7,541 1,317 1,416 1,056
Japan 3,609 - - -
France 1,246 - - -
Non-Paris Club 34,148 2,965 2,637 1,867
China 23,651 - - -
Saudi Arabia 6,661 - - -
Bonds 7,804 1,611 1,584 501
Commercial Creditors 6,094 6,433 1,605 2,996
Chinese Commercial Banks 5,395 - - -
Other 699 - - -
Other International Creditors 652 1,164 486 163
NPC/NBP/BOC deposits/PBC 652 - - -
Total 102,748 18,700 13,309 11,871
Source (s): IMF, AHL Research

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IMF - Pakistan SBA Country Report
Gross Financing Requirements and Sources
Exhibit: Pakistan: Gross Financing Requirements and Sources
Gross External Financing Requirements (A) FY24E FY25F FY26F FY27F FY28F FY29F
USD Million 24,965 21,044 23,111 22,716 29,203 27,890
(In percent of GDP) 7.1 5.5 5.6 5.1 6.1 5.4
Current account deficit 5,649 4,554 5,024 5,955 6,876 7,772
(In percent of GDP) 1.6 1.2 1.2 1.3 1.4 1.5
Amortization 17,675 14,970 17,521 15,640 20,141 18,470
Public Sector 13,780 11,234 13,396 11,320 15,662 13,787
Short-term Borrowing 1,211 2,389 2,800 2,928 2,928 2,928
Long-term Borrowing (non-IMF) 11,569 8,845 8,796 8,391 11,234 9,859
Bonds 1,000 - 1,800 - 1,500 1,000
Private Sector 1/ 3,895 3,736 4,125 4,320 4,479 4,683
Short-term Borrowing 2,812 2,783 2,738 2,933 3,092 3,296
Long-term Borrowing 1,083 953 1,387 1,387 1,387 1,387
IMF Repurchases 1,641 1,521 566 1,121 2,186 1,648

Exhibit: Available Financing (B)

USD Million 26,583 25,379 26,682 24,901 30,300 29,664
Foreign Direct Investment (net) 2/ 689 1,258 1,521 1,902 2,310 2,695
Disbursement 26,176 23,964 25,062 22,899 27,890 26,869
From private creditors 6,659 13,862 15,317 14,349 19,406 18,386
Disbursement to Private Sector 3/ 4,381 6,962 7,111 7,918 10,975 11,180
Disbursement to Public Sector 4/ 2,278 6,900 8,206 6,431 8,431 7,206
From official creditors (non-IMF) 19,517 10,102 9,745 8,550 8,484 8,484
o/w Project Loans 3,721 2,702 2,788 1,821 1,755 1,755
o/w China 9 132 49 47 41 -
o/w Program Loans 3,000 3,500 2,460 2,232 2,232 2,232
o/w Short-term debt (incl. rollovers) 4,426 5,538 6,078 6,078 6,258 6,438
o/w Public Sector 2,494 2,800 2,928 2,928 2,928 2,928
o/w Private Sector 1,932 2,738 3,150 3,150 3,330 3,510
Other Net Capital Inflows (net) 5/ (282) 157 100 100 100 100
IMF SDR allocation - - - - - -
Remaining Financing Needs (C=A-B) (1,618) (4,335) (3,571) (2,185) (1,097) (1,774)
Borrowing from IMF (D) 3,006 - - - - -
Reserve Assets (decrease = +) (E=C-D) (4,624) (4,335) (3,571) (2,185) (1,097) (1,774)
Source (s): IMF, AHL Research

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IMF - Pakistan SBA Country Report
Structural Conditionalities
Exhibit: Pakistan: Structural Conditionality
Date Status
Fiscal
Commit to not grant further tax amnesties. Continuous Met.
Avoid the practice of issuing new preferential tax treatments or exemptions. Continuous Met.
Issuance by the Central Monitoring Unit (CMU) of its first periodic report on the performance end-Dec. 2023 Met.
Social
Inflation adjustment of the unconditional cash transfer (Kafaalat). end-Jan. 2024 Met.
Monetary and Financial
Average premium between the interbank and open market rate will be no more than 1.25 percent during any consecutive 5 business day
Continuous Met.
period.

Submission to parliament of amendments to align Pakistan’s early intervention, bank resolution, and crisis management arrangements with
end-Dec. 2023 Met.
international good practices, in line with
Develop a plan to strengthen internal control systems in lending operations, including updates to collateral policy and counterparty eligibility
March 8, 2024 Met.
policy, in line with recommendations from the 2023 Safeguards Assessment.
Energy Sector, State-Owned Enterprises
Notification of the annual rebasing (AR) for FY24 to take effect on July 1, 2023. end-Jul. 2023 Met.
Notification of the December 2023 semiannual gas tariff adjustment determination. February 15, 2024 Met.
Improve state-owned enterprise (SOE) governance by: (i) operationalizing the recently 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 end-Nov. 2023 Not met.
law fully applicable to those SOEs.
Climate
Cabinet adoption of a Climate-PIMA and PIMA action plan. end-Dec. 2023 Met.
Economic Statistics
Compilation and dissemination of Quarterly National Accounts for FY24Q1 and revised annual end-Nov. 2023 Met.
Source (s): IMF, AHL Research

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IMF - Pakistan SBA Country Report
Quantitative Performance Criteria & Indicative Targets
Exhibit: Pakistan: Quantitative Performance Criteria and Indicative Targets
end-September end-December
Program Adjusted Actual Status Program Proposed Actual Status
I. Quantitative Performance Criteria CR 23/260 Prog. CR 23/260 (PC)

Floor on net international reserves of the SBP USD mn (14,550) (15,673) (13,781) Met (13,800) (13,400) (12,720) Met

Ceiling on net domestic assets of the SBP Stock, PKR bn 15,048 15,370 14,410 Met 14,888 14,450 14,319 Met

Ceiling on SBP's stock of net foreign currency swaps/forward position Negative, USD mn 4,200 … 3,540 Met 4,000 … 3,423 Met

Ceiling on net government budgetary borrowing from the SBP Stock, PKR bn 4,708 … 4,380 Met 4,708 4,708 3,217 Met

Ceiling on the general government primary budget deficit Cumulative, PKR bn (87) (389) (376) Not met (1,232) (1,420) (1,812) Met

Ceiling on the amount of government guarantees Stock, PKR bn 4,000 … 3,806 Met 4,050 4,050 3,748 Met

Cumulative floor on targeted cash transfers spending (BISP) PKR bn 88 … 90 Met 185.5 185.5 186.1 Met

II. Continuous Performance Criteria

Zero new flow of SBP's credit to general government - … - Met - - - Met

Zero ceiling on accumulation of external public payment arrears by the

- … - Met - - - Met
general government

III. Indicative Targets

Cumulative floor on general government budgetary health and education
PKR bn 465 … 482 Met 1,031 905 1,007 Met
spending
Floor on net tax revenues collected by the FBR Cumulative, PKR bn 1,977 … 2,042 Met 4,425 4,425 4,469 Met

Ceiling on net accumulation of tax refund arrears Cumulative, PKR bn 32 … (15) Met 43 43 (31) Met

Ceiling on power sector payment arrears Cumulative Flow, PKR bn (155) … 227 Not Met 64 385 378 Met

Source (s): IMF, AHL Research

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Analyst Certification and Disclaimer
Analyst Certification: The research analyst(s) is (are) principally responsible for preparation of this report. The views expressed in this research report accurately reflect the personal views of the
analyst(s) about the subject security (ies) or sector (or economy), and no part of the compensation of the research analyst(s) was, is, or will be directly or indirectly related to the specific
recommendations and views expressed by research analyst(s) in this report. In addition, we currently do not have any interest (financial or otherwise) in the subject security (ies). Furthermore,
compensation of the Analyst(s) is not determined nor based on any other service(s) that AHL is offering. Analyst(s) are not subject to the supervision or control of any employee of AHL’s non-research
departments, and no personal engaged in providing non-research services have any influence or control over the compensatory evaluation of the Analyst(s).

Equity Research Ratings

Arif Habib Limited (AHL) uses three rating categories, depending upon return form current market price, with Target period as Dec 2024 for Target Price. In addition, return excludes all type of taxes. For
more details, kindly refer the following table;

Rating Description
BUY Upside* of subject security(ies) is more than +15% from last closing of market price(s)
HOLD Upside* of subject security(ies) is between -15% and +15% from last closing of market price(s)
SELL Upside* of subject security(ies) is less than -15% from last closing of market price(s)

Equity Valuation Methodology

AHL Research uses the following valuation technique(s) to arrive at the period end target prices;
▪ Discounted Cash Flow (DCF)
▪ Dividend Discount Model (DDM)
▪ Sum of the Parts (SoTP)
▪ Justified Price to Book (JPTB)
▪ Reserved Base Valuation (RBV)

Risks: The following risks may potentially impact our valuations of subject security (ies);
▪ Market risk
▪ Interest Rate Risk
▪ Exchange Rate (Currency) Risk

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publication is intended only for distribution to the clients of the Company who are assumed to be reasonably sophisticated investors that understand the risks involved in investing in equity securities.
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