September 21, 2007	Friday	Ramazan 08, 1428

ISLAMABAD, Sept 20: The International Monetary Fund (IMF) has asked Pakistan to adopt a “very prudent” macroeconomic policies during the current financial year to lower external current account deficit and ‘associated vulnerabilities’.

The IMF staff mission that stayed here for over a week advised the government to introduce an appropriate policy mix between monetary and fiscal policies to bring down the external current deficit, the mission said on the conclusion of annual article IV consultation with Pakistan authorities.

The staff mission would submit its concluding report to the IMF board of directors next month for consideration by the annual board meetings of the IMF and the World Bank in Washington on October 20-21. Pakistan gave up IMF programme a couple of years ago but is required to have article IV consultation – an advisory interaction – with the IMF on annual basis.

The mission said the prospects for sustained high growth in 2007-08 and over the medium-term remain favourable, as macroeconomic stability and market-oriented reforms further take hold. The mission welcome monetary policy measures and central bank’s intentions to reduce its role in financing the government and providing export finance.

The fund asked the authorities to have a flexible approach to the determination of interest rates to help achieve the inflation objective and reduce import growth. The mission called for reducing the budget deficit to four per cent of GDP in 2007-08. The fund called for further fiscal consolidation, starting in 2007-08 to significantly reducing external current deficit while lessening pressure on real interest rates.

The fund said the authorities agreed that a substantial revenue mobilisation effort was necessary over the medium-term to reduce fiscal deficit while allowing for additional spending on infrastructure development and poverty alleviation.

The mission noted that despite lower import growth, the external current account deficit had increased to 4.9 per cent of GDP in 2006-07, owing to slower export growth. It said the Pakistan economy continued to perform well in 2006-07 with real GDP growth increasing to seven per cent. Average inflation remained near eight per cent, but the 12-month rate has declined in the recent months.

Dr Ashfaq Hasan Khan, spokesman for the finance ministry, said the authorities and the IMF agreed to have a ‘tight-fiscal-tight-monetary-policy’ approach to avoid contagion effect of the volatility in the international bond and equity market.

He said the government side agreed that current account deficit that stood at 4.9 per cent in 2006-07 because of slow export growth would be reduced and pointed out that new avenues of exports were emerging.

For example, he said the mission was told that cement exports this year were expected be about 3.2 million tons particularly to India, South Africa and Libya this year, yielding additional about $360 million because Pakistan’s cement industry’s capacity had reached 37 million tons against domestic demand of 24 million ton, leaving surplus capacity of 10 million ton.