IMF cautions Pakistan to refocus on near term polices

The Executive Board of the IMF concluded the first post program monitoring discussion with Pakistan on March 05, 2018

In a press release the IMF said that while Pakistan’s near term outlook for economic growth looks broadly favorable with Real GDP expected to grow by 5.6 percent in FY17-18 courtesy of improvement in power supply, investment in CPEC related projects, strong consumption growth and recovery in agriculture sector.

However, it noted, that the continued erosion of macroeconomic resilience could put the outlook at risk.

• The fiscal deficit is expected at 5.5 percent this year with higher deficit ahead of upcoming elections.
• Surging Imports have led to a widening current account deficit and significant decline in international reserves despite higher external financing
• The FY2017-18 current account deficit is expected to reach 4.8 percent of GDP with gross international reserves further declining in context of limited exchange rate flexibility
• With rising external and fiscal financial needs and declining reserves, risks to Pakistan’s medium term capacity to repay the Fund have increased since completion of the EFF (Extended Fund Facility) arrangement in September 2016

In light of the above, in the Executive Board’s assessment, the directors urged a determined effort by authorities to refocus near-term policies to preserve macroeconomic stability. While welcoming the move by Pakistan to allow some exchange rate adjustment in December 2017, the directors stressed the importance of greater exchange rate flexibility on a more permanent basis to preserve external buffers and improve competitiveness. They also encouraged the authorities to phase out administrative measures aimed at supporting the balance of payments to minimize economic distortions.

They also called on authorities to strengthen fiscal discipline through additional revenue measures and efforts to contain current expenditure while protecting pro poor spending. The directors also emphasized the need for prudent debt management and caution in phasing in new external liabilities and urgently tackling rising fiscal risks stemming from continued losses in public sector enterprises.

They underscored the importance of accelerating structural reforms to reinforce macroeconomic stability, raise competitiveness and promote higher and more inclusive growth.