The International Monetary Fund (IMF) has said Pakistan is facing an increasingly difficult economic situation and needs significant external financing to stabilize the economy.
“Pakistan is facing an increasingly difficult economic situation, with high fiscal and current account deficits, and low international reserves. This mostly reflects the legacy of an overvalued exchange rate, loose fiscal policy and accommodative monetary policy. The fast rise in international oil prices, normalization of US monetary policy, and tightening financial conditions for emerging markets are adding to this difficult picture. In this environment, economic growth will likely slow significantly, and inflation will rise,” according to a statement issued by the IMF at the conclusion of a visit by its team to Islamabad.
An IMF team led by Harald Finger visited Islamabad from September 27-October 4 to discuss Pakistan’s economic situation and exchange views on necessary policies for economic stabilization and sustainable and inclusive growth.
“Pakistan is facing significant economic challenges, with declining growth, high fiscal and current account deficits, and low levels of international reserves,” the statement said. “Recent policy measures are steps in the right direction, but not yet sufficient. Decisive policy action and significant external financing will be needed to stabilize the economy,” it added.
“The team welcomes the policy measures implemented since last December. These include 18 percent cumulative depreciation of the rupee, interest rate increases of cumulatively 275 bps, fiscal consolidation through the budget supplement proposed by the minister of finance, a large increase in gas tariffs closer to cost recovery levels, and the proposed increase in electricity tariffs. These measures are necessary steps that go in the right direction,” the Fund observed.
“Additional decisive policy action, anchored in a comprehensive strategy, and significant external financing will be needed in the near term. Policies should include more exchange rate flexibility and monetary policy tightening, further fiscal adjustment anchored in a medium-term consolidation strategy, and strengthening the performance of key public enterprises together with further increases in gas and power tariffs,” the statement said. “Together, these steps would help reduce current account pressures and improve debt sustainability. Importantly, to protect the more vulnerable segments of society, there is a need to further strengthen social protection through the Benazir Income Support Program. These policies will help stabilize the economy and lay the foundations for sustainable and inclusive growth,” it added.
“Once stabilization is beginning to take hold, the focus should increasingly shift to reforms to foster sustained and inclusive growth and strengthen key institutions. Priority areas include modernizing the tax system and public financial management, strengthening fiscal federalism arrangements, improving governance and eliminating losses of public enterprises, enhancing the SBP’s autonomy, intensifying AML/CFT efforts, improving the business climate and anti-corruption efforts, and fostering the economic inclusion of the poor, youth, and women,” the statement said.
Published in Daily Times, October 6th 2018.
