According to the recently released IMF World Economic Outlook, Pakistan’s GDP growth is expected to fall to 3.1pc in 2014 from 3.6pc in 2013, before steadily growing back to the respected 5pc mark by 2018, provided the security and energy concerns are addressed dynamically.

Besides, the population is projected to reach up to 200 million by 2017-18, posing more challenges to policymakers.

Monetary policy has been accommodating, as inflation has begun to decelerate. But further upward revisions in electricity and gas tariffs, as well as in the levy to support gas infrastructure development, are expected to keep inflation elevated over the coming years. Inflation is expected to continue to rise till 2015, to an annual rate of around 9pc.

However, after the upward revisions in the power tariffs and a cheaper energy mix has been established, inflation is forecasted to decline from 7pc in 2016 to 6pc in 2017.

Fixed investment continued its downward trend, falling from 14.9pc in 2012 to 14.2pc of GDP in 2013. However, total investment is expected to pick up in coming years, to gradually reach 20pc of GDP in 2018.

The current account deficit narrowed to 1pc of GDP last year due to improvement in the trade deficit, a lower service account deficit following receipts under the Coalition Support Fund (CSF), and continued inflows of worker remittances.

Exports are expected to grow in the remainder of the forecasted years, as benefits from the Generalised Scheme of Preferences Plus are realised; hence, the expected yearly growth of 8.8pc in 2014. Meanwhile, the rate of growth in imports is likely to decline to 4.6pc in 2019.

Achieving fiscal sustainability has been a major recurring challenge for policymakers. Fiscal discipline has eroded in recent years, with the continuing financing needs of expanding energy sector subsidies, power theft, rising losses incurred by state-owned enterprises, and high expenditures for security.

The tax-to-GDP ratio remained between 8.5pc to 9.5pc in recent years, one of the lowest in the region, and reflects structural imbalances. As a result, the country has relied largely on inflows from the CSF and foreign remittances.

Higher fiscal deficits and very limited foreign inflows during the past two years resulted in short-term domestic borrowings and soaring debt servicing costs. In order to widen the revenue base and increase the tax-to-GDP ratio, structural reforms are imperative, as is also being urged by the IMF.

Through devolution of power, the fiscal performance of provinces has become of utmost importance in relation to national fiscal outcomes, as they have assumed greater share of federal resources.

The IMF has taken the assumption that these fiscal reforms will be enacted, leading to government revenues rising from Rs3,021.4 billion in 2013 to Rs3,834.1 billion in 2014. This ideal trend of the rise in government tax revenue may augment the tax-to-GDP ratio to 15pc by 2015.

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