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ISLAMABAD: The International Monetary Fund (IMF) on Wednesday expressed concern over Pakistan’s weakening macroeconomic situation, including widening external and fiscal imbalances, reduction in foreign exchange reserves and emerging risks to economic and financial outlook.
The IMF executive board asked the government to immediately refocus on near-term policies to preserve macroeconomic stability and get back to fiscal discipline shown under the three-year $6.64 billion multi-tranche Extended Fund Facility (EFF) to minimise risks and economic distortions.
In its first post-programme monitoring (PPM) after the completion of fund programme in September last year, the IMF board also raised questions over the medium-term debt sustainability and called for additional revenue measures and containing expenditures.
The board expressed its anxiety over the deteriorating assessment that the country’s fiscal deficit was set to hit 5.5 per cent of GDP — almost Rs505bn or 1.4pc — higher than 4.1pc budgeted by the government and current account deficit to touch 4.8pc of GDP with the economic growth rate staying conservative at 5.6pc instead of budgeted 6pc.
Real GDP estimated to grow by 5.6pc due to improved power supply, CPEC-related investment
The IMF said the near-term economic growth outlook was broadly favourable but “continued erosion of macroeconomic resilience could put this outlook at risk”. Therefore, “Directors also emphasised the need for prudent debt management and caution in phasing in new external liabilities, and the urgency of tackling rising fiscal risks stemming from continued losses in public sector enterprises”, the IMF said in a statement issued two days after the executive board meeting that took place on March 5 in Washington.
The IMF said that real GDP was estimated to grow by 5.6pc during the fiscal year 2017-18 due to improved power supply, investment related to the China-Pakistan Economic Corridor (CPEC), strong consumption growth and ongoing recovery in agriculture. Inflation has remained contained and is estimated at 5.4pc.
Following significant fiscal slippages last year and current year deficit estimated at 5.5pc of GDP, with risks towards a higher deficit ahead of upcoming general elections, surging imports have led to a widening current account deficit and a significant decline in international reserves despite higher external financing.
The IMF noted gross international reserves further declining in a context of limited exchange rate flexibility. Against the backdrop of rising external and fiscal financing needs and declining reserves, “risks to Pakistan’s medium-term capacity to repay the Fund have increased since completion of the EFF arrangement in September 2016”.
The board directors welcomed move to allow some exchange rate adjustment last December, but 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 as soon as conditions allow them to minimise potential economic distortions.
The executive board noted that the external sector pressures were in part linked to the fiscal deterioration during the last fiscal year and an accommodative monetary policy stance, as well as high imports related to the CPEC projects.
The directors called upon the authorities to “strengthen fiscal discipline through additional revenue measures and efforts to contain current expenditure while protecting pro-poor spending”, and emphasised that complementing the recent increase in the policy interest rate with further monetary tightening would be important to address inflationary risks and help reverse external imbalances.
The directors underscored the importance of accelerating structural reforms to reinforce macroeconomic stability, raise competitiveness and promote higher and more inclusive growth.
In the aftermath of recent setback at the Financial Action Task Force, the IMF board called for further enhancing anti-money laundering/counter-terror financing regime and strengthening the fiscal federalism and monetary and financial policy frameworks. The IMF also advised the authorities to improve the business climate, continue to strengthen governance, achieve cost recovery in the energy sector and expand social safety nets to protect the most vulnerable.
Because of substantially higher credit outstanding from the IMF, the borrowing members have to face closer monitoring of the policies under the PPM and undertake more frequent formal consultation with the Fund than is the case under surveillance, with a particular focus on macroeconomic and structural policies that have a bearing on external viability.
Published in Dawn, March 8th, 2018
Comments (49) Closed
We need a complete makeover of everything!
The looted money deposited in foreign in cash and kind should be brought back to Pakistan and repay the loans, the economy will be one of the best in Asia.
The vultures gather for the treat at the cost of the country and its inhabitants.
Wrong priorities lead to disasters.
Because we have very incompetent leaders. Why dont they stop all non-essential imports for a year . Stop giving cars to government officers. No unnecessary travel by government officers.
We should pay head of this advice and take concrete steps to sustain and encourage greater economic growth. Improved tax collection, revenue generation and help to reduce debt servicing should be priorities in addition to focusing on expanded trade, education and family planning. This is an important time for Pakistans and must be proactive and make positive changes.
Thank you America for working against us on international platforms. You really showed us our stupidity by siding with you in your war against Afghanistan. Not only did we miss 20 years of growth, but our entire security has been compromised.
Article gives broad idea about current position of Pak economy. I think pak need investors. Pak should think about the ways to attract more FDI and some fixed income sources other than loan which are causing debt problems. Fixed income can be generated through more engagement with other neighbouring countries markets.
Make a peace agreement with India and start to cultivate all economic benefits.This is not a joke but real words.
Excellent news. Pakistan economy seems to be doing great. Ishaq Dhar has made all of us Pakistanis rich and prosperous.
When corruption is so rampant then what do you expect,Pmln shining Pakistan
What say our own Financial Managers is opposite of what IMF is saying.
Pakistans entire projects are with China that too on loan, still seeking more loans.
Western conspiracy. CPEC hai na!
It is Pakistan which should be concerned about its economy, not the IMF.
The day the people of Pakistan stop feeding themselves on conspiracy theories and apply their brain objectively, they will have more to feed not just themselves but even the world. They are talented but misguided.
All propaganda !!
IMF concerned but is any Pakistani elected politician concerned at all!!
Where is the CPEC money?
So much for the experienced governance of PMLN. The problem is that majority of pakistanis do not have an IQ high enough to understand economic situation of the country and the people responsible for it. A short term personal benefit is enough for them to give away their vote.
Getting trapped in debt trap
Pakistan's banking system and tax implementation is very poor. Difficult times ahead.
Sharif Mafia has systematically destroyed everything in Pakistan.
This happens when a country is ruled by a corrupt and incompetent government whose ministers know nothing about their ministries. And the nation is fooled everyday by false misleading claims about the county's destroyed economy.
Loan is good if you are able to generate money from that loan or if it is very necessary. Otherwise it is a pain while paying back the loan with interest. I am saying if a middle class person takes a loan he knows the pain.
Very pertinent weaknesses highlighted by the IMF, but unless the IMF will highlight them, the government will not listen. The Government should immediately ban any new public sector establishments and must curtail governance as far and wide as possible. And import duties and taxes should be used to curtail imports and not raise FBR's tax collections. Sadly, the Government strategy to control fiscal and current account deficit is missing in the public domain.
Is it time for Pakistan to be bailed out like Greece or Portugal??
All thanks to remarkable performance of King Nawaz Sharif and his talented Wazir, Ishaq Dar who was master of creative accounting.
Pakistan should have an annual economy growth of 6% to 7% in order to achive a sustainable development in the country. Unlike Pakistan both Bangladesh and India have 6% to 7% growth for the last many years.
What else can the IMF say?
Pakistan is yet to start paying back CPEC debt. Imagine what state it would be in when it starts that!
'Feroz - It is Pakistan which should be concerned about its economy, not the IMF'
It's not at all a problem for IMF. But problem arises when Pak approaches IMF for loan / monetary assistance. IMF will see the payback capacity of loanee before disbursing loan, that's what IMF is doing now.
khaya peya aur le gae. whats the confusion??
We need to forget Kadhmir and concentrate on Punjab, Sindh and Balochistan and other areas we already have before the economy collapses
What else can the IMF say at this crucial juncture in time and history?
Pakistan should atleast now stop being obessed with India , instead make peace & join hands with neighbor India & grown together or else it will become a failed state otherwise it will become a puppet(slavery)of China ...I really wish to see stable Pakistan in future .
Economic atom bomb about to explode.
Since loan is being given by IMF so Pakistan has to fulfill its conditions.Its not charity service that every thing comes for free. In real world every thing has a price, nothing comes free. In return IMF is expecting some thing that is result. Sad to say this a big joke to our politicians but big suffering for us ordinary people. When government is runned by circus clowns why they would care for consequences, they are more concerned about their lavish parties.
Pak government can avail massive funds by announcing amnesty to black money declared by offenders. It can also issue bonds for various infrastructure projects where it's citizens would be happy to invest if such bonds are guaranteed by the government. Providing loans are lower or slightly higher than state Bank can also be allowed under government regulation and oversight. But the crucial aspect which dictates success of these measures is law and order. And we all know where that solution lies
thanks pmln
Things must be good if the IMF says they are bad. Never trust loan sharks when they say they care about your prosperity.
Pakistan is a relying country on others
@Feroz the money lender always worries.
great work dawn news
@Fried Chillies Very well articulated. What you have given is a technical solution. Most have blamed the thieving politician. One also needs to ponder, can the Pakistani nation afford to squander away its scarce resources on the military, which has consistently cornered a major chunk of the spending citing percieved security threats.
@Asad very good advise.
IMF has no credibility. They are jealous of pakistan's alliance with China and the progress Pakistan has made thru this friendship.
Until we stop the politicians from managing our business affairs and add real business minds to the financial sectors, the country will continue to struggle, add the evading of taxes by rich, powerful and our politicians with loopholes like ":gifts " properties on relatives names to escape taxes, projects like CPEC will only improve so much. We need to overhaul our tax system, eliminate corruption from the government and private sectors, that is a tall order.
Increase the tax base, execute with minimal leakage, increase trade and connectivity with neighbors, put Kashmir on back burner, curtail defense budget. Surprising though that one year back IMF was positive. But clearly the economy is hobbled with crushing loans - CPEC only serves China not Pakistan.
Thanks IMF for giving advanced warning. Like in the past, Pakistan will take appropriate steps to fix the things up.