For 2013 progress in Pakistan wassignificant and supported by a solid economic reform programof the Government of Pakistan. An IMF Extended Fund Facility(EFF) and two World Bank Development Policy Credits with afocus to restructure the energy sector, foster private andfinancial sector developments and improve social protectionand revenue mobilization reinforced the reform program. Therisk of a balance of payment crisis was minimized with asignificant strengthening of the international reservesposition. This mainly resulted from strong remittances andsignificant foreign capital inflows, which also broughtstability in the foreign exchange market. A strong fiscalconsolidation was achieved; the fiscal deficit was containedat around 5.5 percent of GDP - due to improved taxcollection, high non-tax revenues, and restricted (currentand development) expenditures. Price stabilization followedwith average inflation remaining in single digits. Thisenvironment favored growth recovery, with the GDP growthrate above 4 percent for the first time in seven years -driven by dynamic manufacturing and service sectorssupported by better energy availability and improvedinvestors' expectations. As a result, performance underthe IMF program remained satisfactory, with the Third Reviewconcluded on June 27. However, since mid-August, the ongoingpolitical uncertainty has negatively affected themacroeconomic stance and may modify the pace and depth ofreforms. Some salient features of FY2013/14 economicperformance were: growth re-emerged; increased remittances,capital and financial inflows supported a buildup ofreserves; a significant correction of a previously loosefiscal stance took place; fiscal consolidation andimprovement in business confidence produced a strongrecovery in credit to the private sector, after five yearsof muted growth; price stability - with CPI inflation insingle digit - was preserved; and progress on the structuralreform agenda was promising. The political events followingthe mid-August Long-March and Sit-in may have affected theeconomy, and it also remains to be determined how much thepro-reform momentum, so carefully gathered during the pastfiscal year and entering a decisive second year, will beaffected by the civil unrest, but new investors'confidence-building measures will have to be nurtured toreinvigorate the reform agenda.
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