WASHINGTON/ISLAMABAD: Noting that Pakistan’s economy is showing signs of improvement, the International Monetary Fund has reported a “better-than-expected” GDP growth in the country.

The IMF also pointed in a report issued on Sunday that Pakistan had met nearly all of its quantitative performance markers and its reform programme remained broadly on track.

“Pakistan’s economy is showing signs of improved economic activity. Services and manufacturing are driving better-than-expected GDP growth, as reforms in the electricity sector seem to be bearing fruit with electricity shortages and unscheduled loadshedding declining,” the report observed.

Pakistan signed a $6.7 billion loan with the IMF in September, less than six years after the country’s last IMF bailout, mainly to repay the institution nearly $5 billion that Islamabad still owes.

Under the agreement, the IMF conducts periodic reviews to approve instalments of $550 million spread out over three years. So far Pakistan has received two instalments totalling nearly $1.1bn. The third instalment is up for consideration in late March.

To secure the loan, Pakistan committed to a reform-package designed to increase growth and improve financial stability. A dangerously low foreign currency reserve of $8.3bn and other weakness continue to keep the national economy unstable.

An IMF staff mission met Pakistani officials in Dubai from Feb 1 to 9 for discussions on the second review of Pakistan’s IMF-supported programme under the Extended Fund Facility.

Finance Minister Ishaq Dar led the Pakistani team, which included acting Governor State Bank of Pakistan Ashraf Wathra, Finance Secretary Dr Waqar Masood Khan and other senior officials.

At the conclusion of the mission, the head of the IMF team, Jeffrey Franks, said that they were encouraged by the overall progress made in pushing ahead with policies to strengthen macroeconomic stability and reviving economic growth.

“Led by large-scale manufacturing and service sectors, growth is picking up and is now expected to reach about 3.1 per cent for fiscal year 2013-14 as a whole, compared to the earlier estimate of 2.8pc,” he said.

“Fiscal performance continued on track in the second quarter of 2013-14, with initial consolidation efforts relying on revenue mobilisation and reduction in energy subsidies.”

The IMF report, however, pointed that on the external side “pressures on the balance of payments were likely to persist for some months”. But it also noted that the SBP had continued its efforts to rebuild reserve, and the foreign exchange market had stabilised.

“The authority’s reform programme remains broadly on track, with the government meeting all of the quantitative performance criteria by end December 2013, with the exception of the targets on SBP’s net swap/forward positions and the ceiling on government borrowing from SBP,” Mr Franks said.

At the Dubai meeting, Pakistani officials reaffirmed their commitment to adopt the necessary corrective actions, including measures to improve the financing of government debt through a medium-term strategy of institutional development and deepening of the government’s securities market.

Progress on the unwinding of the SBP’s swap/forward positions to reach programme limits is under way, and progress on this front is satisfactory so far. “The mission recognises the authorities’ resolve to pursue agreed structural reforms to enhance medium-term growth prospects and rebuild foreign exchange reserves to underpin investor confidence,” Mr Franks said.

He emphasised that timely implementation of reform measures articulated in the National Energy Policy was of high priority in ensuring affordable and reliable supply of energy.

Recognising that fixing Pakistan’s energy problem calls for a medium-term strategy of sustained reform, Pakistani authorities agreed to press forward with efforts to improve energy sector governance, promote private investment in electricity power generation and modernisation, and transition to a market-based system of gas pricing.

The mission noted that the government’s privatisation agenda remained on track with capital market transactions for some companies, investments by strategic investors in others, and restructuring to improve resource allocation and limit poor performance.

The IMF reminded Pakistani authorities that “decisive efforts” to broaden the tax net through the elimination of tax exemptions and loopholes granted through statutory regulatory orders were critical to the future of Pakistan’s economy.

“Protecting the most vulnerable from the direct and indirect impact of fiscal adjustment continues to be a priority of the IMF as well as the government of Pakistan,” Mr Franks said.

To that end, the mission acknowledged the government’s efforts to deepen its support to the poor through expanding the Income Support Programme, and other mechanisms. The IMF also welcomed Pakistan’s commitment to upgrade the delivery system to ensure timely payments to 4.9 million eligible families.

The IMF mission staff will prepare a report for the IMF executive board on the second review under Pakistan’s EFF that is tentatively scheduled for consideration in late-March, 2014. Upon approval, about $550 million would be made available to Pakistan.