Higher oil price to lower spending on infrastructure and social sectors - IMF

Pakistan and other countries to face difficulties in maintaining high spending levels of past couple of years in sectors like infrastructure, health care, education and social services owing to higher oil prices.

According to a report released by the International Monetary Fund, the counties like Pakistan, dependent on oil imports got cushion due to fall at international crude oil prices resulted in lower amount of subsidies, allowing them to increase their spending on social and infrastructure.

The IMF in its report said oil prices in 2017 would be almost 30 percent higher than last year and any further increase could undermine consumption, increase fiscal risk and worsen external imbalances. However, this downside risk would be partly offset by higher remittances and other foreign support from oil-exporting countries in the region, principally benefiting Egypt, Jordan, Lebanon, and Pakistan.

More generally, a key priority for oil-importing countries is to generate higher revenues by broadening the existing tax base. This will require measures simplifying the tax rate structure and eliminating exemptions.

The IMF reports said that the regional growth is expected to increase from 3.7 percent in 2016 to 4 percent in 2017 and to 4.4 percent in 2018. In part, this rebound will reflect a fading of idiosyncratic shocks from 2016 (drought in Morocco, weak cotton harvest in Pakistan).

More generally, the improved outlook reflects the continued dividends from past reforms, which have reduced fiscal deficits and improved the business climate in Pakistan and Morocco, supported by a scaling up in public investment in Pakistan. In addition, growth will be supported by the broader global recovery, which is expected to boost demand from the region’s main export markets0
Against this backdrop, however, activity across the region’s oil importers will vary significantly. Growth will be particularly robust in Djibouti, where foreign-financed infrastructure spending will remain a key driver, and in Pakistan, where implementation of the China-Pakistan Economic Corridor will boost investment.Type a message