RESTRICTED
WORLD TRADE WT/BOP/R/27
15July1997
ORGANIZATION(97-2953)
Committee onBalance-of-Payments Restrictions
REPORT ONTHE CONSULTATIONS WITH PAKISTAN
1. TheWTO Committee onBalance-of-Payments Restrictions meton21and22April toconsult
withtheGovernmentofPakistan.TheconsultationwasheldundertheChairmanshipofMr.P.R.Jenkins
(United Kingdom), inaccordance withtheCommittee 'sterms ofreference, pursuant toArticle XVIII:B,
paragraph 12(b) ofGATT 1994 andtheUnderstanding ontheBalance-of-Payments Provisions of
GATT 1994. TheInternational Monetary Fund wasinvited toparticipate intheconsultation in
accordance withArticle XV:2 ofGATT 1994.
2. TheCommittee hadbefore itthefollowing documents:
WT/BOP/15 Basic Document supplied byPakistan, 28October 1996
WT/BOP/15/Add.1 Basic Document supplied byPakistan, Addendum
WT/BOP/W/17 Background Paper bytheSecretariat, 30October 1996
WT/BOP/N/14 Notification received from Pakistan, 25October 1996
WT/BOP/N/14/Add.1 Addendum tonotification received from Pakistan
WT/BOP/W/15/Rev.1 Revised schedule ofmeetings
WT/BOP/INF/4 Updated membership list
WT/BOP/N/18 Notification received from theRepublic ofBulgaria
Opening Statement bytheRepresentative ofPakistan
3. Theopening statement bytherepresentative ofPakistan isattached asAnnex I.
Statement bytheInternational Monetary Fund
4. Thestatement bytherepresentative oftheInternational Monetary Fundisattached asAnnex II.
Discussion intheCommittee
(i) Balance-of-payments position andprospects; alternative measures torestore equilibrium
5. MembersrecognizedtheadverseeconomicsituationPakistanfacedandthefragilityofitsbalance
ofpayments. Thecurrent account deficit hadwidened to6.6.percentofGDP inthepreceding fiscal
yearandreserves haddeclined fromeightweeks toacurrent estimated fourweeks ofimport coverage;
significant foreign debtrepresented anadditional burden ontheexternal account.
6. Members expressed appreciation fortheboldpolicy initiatives introduced byPakistan inan
effort tostabilize theeconomy, especially thereduction andsimplification oftariffs andother tradeWT/BOP/R/27
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reforms. Members recognized, andexpressed fullsupport for,theGovernment 'scommitment totrade
liberalization inspiteofadifficult balance-of-payments situation. Theyencouraged Pakistan tocontinue
inthisdirection.Somecommentedthatrevenuesourcescouldbediversifiedfurtherandpolicyfine-tuned
toincrease thedomestic savings rate.
(ii) System, method andeffect ofrestrictions
7. Members sought clarification ontheimport prohibitions listed inWT/BOP/N/14 andAdd.1,
expressing theviewthatjustification formany oftheprohibitions might more appropriately besought
onreligious, safety orsecurity grounds. OneMember deduced thatseparating outsuchitems would
essentially leave onlytextiles andclothing products onthelist.
8. Some Members pointed outthattherestrictions didnotaddress thegeneral levelofimports.
Theysuggested thatitwould bemoreappropriate forPakistan tohaverecourse toprice-based measures,
since quantitative restrictions constitute ablunt instrument foraddressing thebalance-of-payments
problem. They noted thataswitch toprice-based measures would beconsistent withtheoverall thrust
ofPakistan 'sreforms andtheapproach totrade liberalization, through tariffication, outlined in
paragraph 55oftheBasic Document (WT/BOP/15).
9. Athirdpoint raised, seenasrelevant totheprovisions oftheUnderstanding, wastheabsence
ofatimeschedule orplanforelimination oftherestrictions. Inthiscontext, some Members, pointing
outthatPakistan hadnotincreased restrictions inspiteofitseconomic difficulties, contended that
Pakistan needed timetophase outrestrictions, especially inthelight oftheslow paceofglobal
liberalization intextiles andclothing. Others thought Pakistan should givepriority todrawing upa
timeschedule, asstipulated inparagraph 1oftheUnderstanding, noting thatitcould bemodified to
takeaccount ofchanges inPakistan 'sbalance-of-payments situation.
Replies bytheRepresentative ofPakistan
10. Therepresentative ofPakistan argued, that,while, inprinciple, hisGovernment agreed that
price-based measures werepreferable toquantitative restrictions, inthiscasequantitative restrictions
were theonlywaytoprevent asurge inimports since theitems onPakistan 'slist-excluding those
banned formoral, safety orsimilar reasons -wereitems forwhich theelasticity ofdemand waslow.
Heundertook toproduce arevised notification, making thedistinctions Members hadsuggested which
would beappropriate, butfeltthatinthelightofPakistan 'sbalance-of-payments position andprospects,
itwould bepremature toproduce atimeschedule forelimination. Time should beallowed toassess
theimpact oftheveryliberal policies theGovernment wasadopting under itsreform program.
Conclusions
11. CommitteeMembersrecognizedthatPakistanwasfacingaseriousbalance-of-paymentsproblem
andagreed thatitwasjustified inresorting tomeasures inaccordance withArticle XVIII:B of
GATT 1994.
12. Members welcomed andexpressed support fortheboldactions taken byPakistan within the
context oftherecently announced economic reform package. They commended theGovernment 's
policies aimed atimproving thesupply ofproductive factors by,interalia,lowering tariffs andother
indirect taxes, broadening thetaxbaseandcurtailing public expenditure.
13. While Members appreciated thereduction ofitems ontheNegative Listfrom214to68since
1989, some pointed outthatmany oftheitems listed should more appropriately bejustified under otherWT/BOP/R/27
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WTO provisions, e.g.ongrounds ofhealth, safety, public morals orsecurity. Members requested
thatPakistan produce, inaccordance withparagraph 11oftheUnderstanding, aclearer notification
regarding which items were specifically being justified under Article XVIII:B. Inaddition, some
questioned therecourse toquantitative restrictions, noting thatprice-based measures werenormally
tobepreferred.
14. TheCommittee agreed tomeetagain inOctober 1997, withaviewtoconcluding, onthebasis
of(i)aclarification ofPakistan 'snotification ofitems restricted onbalance-of-payments grounds, as
wellasanexplanation astowhyquantitative restrictions werepreferred toprice-based measures, and
(ii)ashort paper which addresses theprocedural requirements contained inParagraph 1ofthe
Understanding.WT/BOP/R/27
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ANNEX I
Statement bytheRepresentative ofPakistan
1. Itisindeed amatter ofprivilege formetoleadPakistan delegation tothefullconsultations
onbalance ofpayments under Article XVIII:B(12)b ofGATT 1994.
2. Pakistan attaches great importance tothese consultations astheyarebeing heldafteralmost
eightyears.Duringthisperiod,Pakistan'seconomyhasnotonlywitnessedsignificantstructuralchanges
butalsocome alongwayinterms ofitsintegration intotheworld trading system.
3. Mr.Chairman, Pakistan isacountry ofsubstantial economic potential endowed withrichnatural
resources. Itisalsoacountry which facesonerous developmental challenges. Tomeetthesechallenges
andestablish abasisforsustained growth, fundamental changes havebeenintroduced inthecountry 's
economic policies. Iwould liketoemphasise herethatPakistan wasperhaps oneofthefirstcountries
inourregion tohavecompletely transformed itsbasic economic framework from aregulated toa
virtually freesystem inashort spanoftimeeveninthefaceofeconomic difficulties.
4. TheBasic Document prepared byPakistan onbalance ofpayments andmacroeconomic
performance along withthebackground paper prepared bytheWTO Secretariat havebeencirculated
toallconcerned. These background papers provide abriefaccount ofPakistan 'seconomic performance
andchanges initstrade regime since thefiscal year1991-92.
5. Iwouldliketobrieflyre-capitulatemajordevelopmentsintheeconomyduringtheperiod1991-92
to1995-96. Whereas Pakistan 'srealGDPregistered anaverage growth rateof5percentfortheperiod
1991-92 to1996-97, therewerewidefluctuations onayear-to-year basis. Forexample, therealGDP
(FC)grew by7.7percentin1991-92 butthegrowth ratedeclined toalowlevelof2.3percentin
1992-93, primarily duetodamage caused byexcessive rains totheprimary sector andindustrial
infrastructure,adversemovementincommoditytermsoftradeandslippageintheGovernment'sfinancial
policies. Theeconomy however, entered aphase ofrecovery insubsequent years. In1993-94, GDP
registered agrowth rateof4.5percentandintheyears 1994-95 and1995-96, GDPgrewatanannual
rateof5.3percent. Theestimated GDP growth for1996-97 is4.5percent. Pakistan economy had
alsotofacetheadverse impact ofexternal shocks suchasincrease inprices ofsome ofthemajor import
items linepalm oil,etc.These shocks wereresponsible forraising theunitvalue formajor imports
andincreasing theimport billwithconsequent deterioration inthebalance oftrade.
6. Mr.Chairman, Government ofPakistan hasundertaken extensive economic reforms aimed
atthecreation ofaliberal investment andtrading environment andpromotion ofamacro-based economy
aspointed outintheBasic Document prepared byPakistan. Theentire system oflicences, permits
andcontrols onbusiness activities andtransactions hasbeenabolished andforeign exchange restrictions
havebeen removed. Investment decisions nolonger require aNoObjection Certificate from the
Government.
7. Mr.Chairman, Pakistan istaking appropriate policy measures toimplement itscommitments
under theUruguay Round Agreements. Wehavefulfilled themyriad obligations indifferent areas,
relatingtotariffs(marketaccess),Agriculture,TextilesandClothing,TradeRelatedIntellectualProperty
Rights, Trade Related Investment Measures andServices, etc.Despite thecosts involved andthe
constraints which theimplementation process imposes onadeveloping country likePakistan, ourefforts
toliveuptoourcontractual obligations willbecontinued.WT/BOP/R/27
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8. Against thebackground ofglobal economic environment, andthepolicy framework of
liberalization andprivatization being pursued bytheGovernment ofPakistan, Iwould liketohighlight
some ofthemajor economic problems which weface. These include: thethreat ofaninflationary
spiral, external sector disequilibrium andhighbudgetary deficits. During thecurrent fiscal year,prices
havebeenunder pressure. From July1996 toFebruary 1997, theCPIincreased by11.34 percent
overthecorresponding period lastyear. Tothisincrease, food, beverages andtobacco contributed
5.02percent,fuelandlighting0.54percentandtransportation1.12percent.Theinflationarypressures
havebeencaused bybothinternal andexternal factors. Excessive money supply intheeconomy and
increase intheunitvalue ofimports havebeenthemajor factors contributing totheinflationary pressure.
Itishoped thatincreasing localsupply incombination withdemand management measures would make
itpossible tohalttheupward trend inprices.
9. Mr.Chairman, the7percentdevaluation ofthePakistani Rupee inOctober 1996didmoderate
thetrade deficit, asanticipated, atleast intheshort term. Themonthly deficit came down to
US$310 million inNovember andUS$241 million inDecember 1996 ascompared tothedeficit of
US$452 million inOctober 1996. However, thedevaluation isnotexpected tohaveanysubstantial
impact onthecumulative 12month trade imbalance which would bearound US$3 billion in1996-97,
almost theaverage trend forthelastthree years.
10. Itisimportant torealise thatPakistan 'smain imports arerawmaterials, machinery andfood
items. Theerratic, yetsharp upward trend intheimport offooditems iscause forconcern, since
domestic priceincreases inedible oilandflourhasadisproportionate impact onlowincome households.
Topre-empt orrectify asharp increase intheprice ofthese essential fooditems, Pakistan often has
nochoice buttoimport tomake upforthesupply shortfall.
11. Asregards Pakistan 'simports, looking atthequantitative increase inselect items, wefindthe
following ranking ofthesharpest linear increase: (1)unmilled wheat posted thesteepest trend despite
averyerratic growth pattern; (2)machinery imports show astrong increase withtwomajor spikes,
onein1991/92 because oftheboost inthetextile sector, andtheother, afterJune1994; (3)chemicals
haveshown consistent growth, which rosesharply inthelastfiscal year; and(4)imports ofpetroleum
havealsorisen rather sharply since 1990/91.
12. Pakistan 'sexports canberanked asfollows: (1)cotton yarnexports haveshown thestrongest
trend,buthavetaperedoffsince1993/94;(2)despiteaccountingforonly3.1percentofexportrevenues
in1995/96, sports goods haveposted thesharpest upward trend inthepastthree years; (3)garments
havelargely carried Pakistan 'sexports accounting foronly2.5percentofearnings in1980/81, and
rising to7.5percentin1995/96; and(4)cotton cloth comes nextshowing aconsistent increasing
trend.
13. Intheimmediate future, itislikely thatPakistan willcontinue tofacepressure ontheexternal
sector. Infact,thetrade imbalance forthefirstninemonths of1995/96 wasUS$2.67 billion, which
increased toUS$3.66 billion forthefullfiscal year. Thefirstninemonths ofthefiscal year1996-97
havealready witnessed adeficit ofUS$2.62 billion, which ismost likely toresult inatrade deficit
ofUS$3 billion fortheyearasstated earlier. More generally, fiscal 1995/96 witnessed acurrent account
deficit ofUS$4.6 billion which was6.6percentofGDP, compared toadeficit ofUS$2.5 billion,
which was4.1percentofGDP, in1994/95. Given therecent trend inthetradesector, itseems highly
unlikely thatPakistan willbeabletomeetthetargeted current account deficit of4.4percentofthe
GDP in1996/97. Iflastyear'strends inremittances andthedeficit intrade services weretopersist,
thisimplies thatthecurrent account deficit forthisfiscal yearwillbeUS$4.3 billion. Thepresent
level ofliquid foreign exchange reserves isUS$800 million which isexpected torisetoaround
US$1 billion attheclose ofthefiscal year1996-97, equivalent tofourweeks ofimports cover.WT/BOP/R/27
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14. Notwithstanding thispressure onbalance ofpayments, theGovernment ofPakistan hasrefrained
from anytightening oftheimport regime. Onthecontrary theNegative Listhasbeenpruned from
214items in1989-90 to68items in1996-97.
15. Mr.Chairman, theseweretheeconomic conditions facing Pakistan when thenewGovernment
assumed office following theGeneral Elections heldon3February 1997. ThenewGovernment has
anoverwhelming mandate from thepeople ofPakistan toformulate andpursue appropriate policies
torectify theserious economic situation itinherited. Theavowed aimoftheGovernment istoundertake
economic reforms andtoprovide momentum totheprocess ofliberalization inorder tomeet its
international commitments under theUruguay Round Agreements. TheAddendum toPakistan 'sBasic
Document outlines themeasures undertaken bytheGovernment on28March 1997 torevive the
economy. Itisaboldpackage designed todealwiththeacute economic crisis andtoraisethelevel
ofinvestment andexports byenhancing productivity andenlarging production. Weexpect thatthe
economic revival package willgenerate sufficient resources notonlytooffset revenue losses butcreate
additional revenue sources thusmaking itpossible toreduce thebudget deficit. Wehavetriedto
rationalize ourtariff structure toprovide incentives toinvestment andproduction through abolition
oftheregulatory duty of10percentandreduction ofthemaximum tariff from 65percentto
45percent. Thenumber ofslabshasbeenreduced from13to6(0,10,15,25,35and45percent).
Itishoped thatthese liberal tariff reforms willprove beneficial totheeconomy, increase production
andprovide momentum totheprocess ofeconomic growth. TheGovernment hasalsoannounced a
package ofincentives fortheagriculture sector on3April 1997withaviewtoachieving self-sufficiency
infood.
16. TheGovernment isalsomaking concerted efforts toreduce itstrade deficit byadopting
substantive measures toboost itsexports. Themeasures, inbrief, are:
(a) Duty onimport ofmachinery forexport-oriented industries hasbeen reduced to
10percent.
(b) Import ofrawmaterials usedmainly forexports arebeing zero-rated.
(c) Tofacilitate exports fromSMEs, ithasbeendecided tochannel export credit tosmall-
andmedium-exporting firms onapreferential basis.
(d) Toencourage exports ofnon-traditional items, theGovernment proposes toextend
support through introduction ofsimplified customs procedures andlowering of
transaction costs ofexports byupgrading thetransport andcommunications
infrastructure.
(e) Relevant agencies areaccelerating theirefforts toputinplace systems ofaccreditation
andcertification about quality standards sothatmorecompanies could obtain ISO9000
andISO14000 certification.
17. TheFinance Minister ofPakistan, when presenting thepackage ofeconomic reforms toour
National Assembly on28March, stated:
"The historic mandate delivered bythevoters intherecent election hasguaranteed
political stability andvastly improved theinvestment climate. Inthispositive
environment, thepackage Ihavejustannounced hasthepotential oftaking Pakistan
outofthecurrent economic crisis. Itisourownpackage. Wearepleased thatourWT/BOP/R/27
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newapproach package hasbeen endorsed bytheIMFandwillform thebasis of
negotiations onanE.S.A.F. facility inthenextfewweeks."
18. Mr.Chairman,wehopethattheCommitteeonBalance-of-PaymentsRestrictionswillappreciate
thesubstantial tradeliberalization measures which havebeenimplemented byPakistan since 1988and
theboldeconomic reforms package which thePakistan Government hasrecently initiated. Wealso
hope thattheCommittee willappreciate theeconomic difficulties which Pakistan confronts andthe
measures which ourGovernment istaking toovercome these difficulties. Weareconfident thatthe
Committee willextend itsfullsupport andunderstanding toPakistan 'strade andeconomic policies
andreforms, which aredesigned tomaintain sustained, low-inflation growth, through aliberalized,
export-oriented andinvestment-friendly economic framework. We,inPakistan areconfident thatwith
patience andhonest endeavour, wewillsucceed insurmounting ourcurrent economic difficulties and
restoring Pakistan 'seconomy tothepathofhighanddynamic growth.WT/BOP/R/27
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ANNEX II
Statement bytheIMFRepresentative
Thisstatement (i)updates theinformation onexternal sector developments in1996/97 (July-June fiscal
year) contained inthesupplementary background material fortheWTO (SM/96/263, dated 10/22/96);
(ii)describes themost recent policy developments; (iii)reviews theoutlook forthefiscal yearasa
whole; and(iv)provides abriefassessment ofthenewgovernment ’seconomic strategy.
1. Recent balance-of-payments developments
Inviewoftheemerging trends described inSM/96/263, thePakistani authorities adopted inOctober
1996, afterconsultation withtheFund staffandmanagement, acorrective policy package supported
bystructural reforms. Thepackage included fiscal measures, increases inkeyinterest rates, andan
8.5percent devaluation oftherupee withfullpass-through topetroleum prices. Thestructural measures
emphasized, interalia,implementation ofanagricultural income taxandrestructuring ofthebanking
sector.
Thecaretaker government, which assumed office onNovember 5,1996, endorsed these policies and
reinforced them withadditional fiscal measures--including a5percent increase inpetroleum prices,
elimination ofthe5percent concessional rateoftheGeneral Sales Tax(GST) withtransfer ofitems
tothenexthigher rate(10percent), increases insome federal feesandcharges, andfurther non-priority
expenditure cuts.
Partly because ofthepolitical uncertainties intherun-up tothenational elections held on
February 3,1997andalsoduetoweaknesses inimplementation onthefiscal front, theabove described
corrective measures didnotproduce theenvisaged improvement inthemacroeconomic situation. As
aresult, Pakistan ’sbalance ofpayments performance in1996/97 continues tobecharacterized bya
large current account deficit, heavy reliance onshort-term financing, andarelatively weak external
reserve position.
Inthefirstninemonths ofthefiscal year,thecurrent account deficit (before official transfers) amounted
toanestimated US$3.7 billion reflecting atrade deficit ofUS$2.6 billion andadeficit intheservices
account ofUS$2.8 billion which werepartly offset byprivate transfers amounting toUS$1.7 billion.
Netmedium- andlong-term capital inflows amounted toabout US$1.5 billion while netshort-term
capital inflows amounted toabout US$900 million. Reflecting thesedevelopments, thenetforeign asset
position ofthecentral bankdeteriorated markedly, including adecline ingross official reserves tobelow
US$900 million (3.6weeks ofimports) atend-March, from US$2.1 billion atthebeginning ofthe
fiscal year.
2. TheGovernment ’sstabilization andreform measures
Inresponse tothecontinued vulnerable external outlook, thegovernment thatassumed office after
theFebruary 3elections hasembarked onaconsolidation andintensification ofthestructural reforms
andadjustment efforts initiated inOctober 1996.This includes are-enforcement ofthemacroeconomic
stabilization effort andstructural reforms inthetaxsystem, inthefinancial sector, andinthe
non-financial public sector.
Thegovernment hasre-enforced itsmacroeconomic policy stance through thefollowing actions: (i)
implementation offiscal measures yielding PRs10billion during April-June 1997(1.6percent ofGDPWT/BOP/R/27
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onanannual basis); (ii)increases inkeyinterest rates; and(iii)containment ofnon-government credit
during 1996/97 toPRs73billion through useofopen market operations. Moreover, aresponsive
exchange ratepolicy willbepursued.
Asregards taxpolicy reform andreform ofthenon-financial public sector, thegovernment hastaken
thefollowing steps: (i)taking advantage oftherecently adopted revenue sharing arrangement (which
hasremovedthedisincentivestotaxreformthatexistedunderthepreviousarrangement),thegovernment
isembarking onathorough rationalization andsimplification ofthetaxsystem; (ii)itiscontaining
andrationalizing public sector expenditure through actions regarding thelevelandcomposition ofthe
budgetary outlays andimprovements intheoperations ofthepublic sector enterprises; and(iii)itwill
secure legislative approval, byMay15,1997, ofthefourprovincial ordinances adopting agricultural
income taxation which were issued lastDecember.
Thethrust ofthetaxreform component isarationalization oftheratestructure andareduction intax
ratesconcurrent withabroadening ofthetaxbase. Consistent withtheseobjectives, thefollowing steps
havebeenannounced:
- Tariff reform :Aspartofathree-year program, thegovernment hasreduced themaximum
tariff rateto45percent (from 65percent), andthenumerous dutyratestoasix-band system
(0,10,15,25,35and45percent). The10percent regulatory dutyhasbeeneliminated. To
broaden thetaxbase, allconcessions willbeabolished, except forthose relating tointernational
commitments, exports, orwhich aretimebound. Inaddition, thelistofzero-rated goods will
bereduced toanabsolute minimum.
- GST reform :ThebaseoftheGSTwillbeextended horizontally bybringing intotheGST
net,byend-June 1997, several exempt manufacturing andimported goods. Asasteptowards
extending itvertically totheretail sector, aturnover taxof3percent willbeimposed by
end-August 1997inallareas withmetropolitan/municipal status (while offering thechoice to
traders toregister fortheGST). Theratestructure hasbeensimplified byeliminating thehighest
ofthethree non-zero rates(the23percent rate); andthestandard ratehasbeenreduced to
12½percent (from 18percent).
- Reform ofdirect taxation :Thegovernment willimplement, byend-June 1997, areduction
inthelevelandnumber ofincome taxrates, together withanexpansion ofthedefinition of
income (toinclude allowances andperks inkind) andtheobligatory filing ofreturns forpersons
owning carsandtelephones, occupants ofdifferent categories ofproperty through ownership
orleasing, andpersons engaged inforeign travel. Inaddition, byend-June 1997, thegovernment
willimplement ascheme ofobligatory filing ofwealth taxreturns based onownership ofassets
(similar tothatforincome taxation) andtheadoption ofaminimum taxonlarge homes and
automobiles.
Asregards thefinancial sector, theauthorities will:(i)secure parliamentary approval, byMay15,
1997, oftheordinances promulgated bythecaretaker government aimed atimproving governance in
thepublic sector financial institutions andstrengthening theroleofthecentral bank inconducting
monetary policy andinregulating andsupervising thefinancial sector; and(ii)advance withthe
restructuring andprivatization ofthepublic sector banks anddevelopment finance institutions.
3. Near-term outlook
Ifimplemented onatimely basis, theabove policy package would havetheimpact ofcontaining the
budget deficit at4.8percent ofGDPin1996/97 (down from6.3percent in1995/96) andtheexpansionWT/BOP/R/27
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ofthenetdomestic assets ofthebanking system at17.7percent oftheinitial liquidity stock (down
from 18.5percent in1995/96). Thisisexpected tocontribute tocontain theexternal current account
deficit atabout thesame levelasin1995/96 (US$4.3 billion, equivalent to6.8percent ofGDP). On
thisbasis, gross official reserves would recover toabove US$1 billion (about fiveweeks ofimports)
bytheendofthe1996/97 fiscal yearnotwithstanding thescheduled debtservice payments.
4. Conclusions
Theimplementation ofthenewgovernment ’sreforms initiatives would constitute asubstantial and
much needed change inthestructure oftheeconomy. Thereforms would provide afirmbasisforfurther
effortstoenhancethegrowthpotentialofthePakistaneconomy,eliminatechronicstructuralweaknesses,
andimprove theinflation andbalance ofpayments performance. There are,however, downside risks.
First, theexternal outlook remains fragile andtheeconomy isveryvulnerable tounfavourable changes
inmarket sentiments. Second, thewiderange oftheproposed reforms willputastrain onthecountry ’s
implementation andadministrative capacity. Third, itiscritical thatthepackage ofreforms be
implemented fullyandonatimely basis. Inparticular, anyslippage inthebroadening ofthebases
oftheaffected taxes would leadtorevenue losses thatwould needtobeimmediately compensated by
further fiscal efforts. Inviewofthese risks, Fund staffhasstressed totheauthorities theimportance
ofdetermined policy implementation andhighresponsiveness ofthepolicy stance tochanges inmarket
sentiment.