ISLAMABAD - Expressing satisfaction over the economic performance of Pakistan, the International Monetary Fund (IMF) has noted that increase in electricity tariffs has reduced subsidies but further efforts are needed to improve the energy sector’s efficiency.

A report meanwhile said that while the IMF has approved the second tranche of 550 million dollars to Pakistan under the 6.6 billion dollar loan programme, it has also handed over a list of demands, including further increase in electricity tariff to ease the government off the so-called burden it had to pull due to subsidies. The report also quoted an IMF official as saying that the shock or burden should not excessively affect the underprivileged segment of society, but how the move, if materialised, would affect the people of Pakistan, remains a potent economic question at a time when the people are already hard pressed by inflation.

The Executive Board of the IMF on Thursday completed the first review of Pakistan’s economic performance under a three-year program supported by an arrangement under the Extended Fund Facility (EFF). The completion of the review enables an immediate disbursement of an amount equivalent to SDR 360 million (about $553.3 million).

In completing the first review, the Executive Board also approved the authorities’ request for a waiver of non-observance of the end-September 2013 performance criterion on net international reserves (NIR) based on corrective actions taken by the authorities.

“It will be important to protect the most vulnerable population by avoiding slippages in targeted cash transfers,” said Nemat Shafik, Deputy Managing Director and Acting Chair, after Executive Board’s discussion on Pakistan. She said: “The authorities’ performance under the Extended Fund Facility arrangement has been satisfactory. They have taken steps to address fiscal imbalances and structural issues in the energy sector. Nonetheless, overall vulnerabilities remain high, and it will be crucial to consolidate the fiscal adjustment, boost external buffers, and deepen structural reforms”.

“A more ambitious approach is needed to improve tax administration and eliminate tax loopholes”, he noted. “The low level of international reserves needs to be rebuilt. The central bank should use the policy tools at its disposal to boost reserves through policy rate adjustment, reserves purchases, and greater exchange rate flexibility. The central bank will also need to address inflation once reserves begin to recover, for which greater central bank independence is essential.

“Policies to safeguard financial sector stability should continue, including addressing banks with capital below minimum requirements and with high non-performing loans and monitoring banks’ holdings of government debt”. “The good start on structural reforms should be continued. It will be important to implement the authorities’ privatisation plans for public sector enterprises. Improving the business climate and moving to a simpler and more transparent import tariff regime will also yield significant benefits.”

The 36-month EFF arrangement in the amount of SDR 4.393 billion (around $6.75 billion, or 425 percent of Pakistan’s quota at the IMF) was approved by the Executive Board on September 4, 2014.

Monitoring desk adds: The IMF has demanded the government of Pakistan increase electricity tariff, but has also directed that its impact should not be felt heavily by on the underprivileged.

According to the Acting Head of the IMF Executive Board, electricity rates would have to be increased in Pakistan to take the pressure off the government due to earlier heavy subsidies.