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‘Debt level to remain high despite consolidation’

Updated November 15, 2018


IMF Regional Economic Outlook includes Pakistan in countries where debt will remain above 60pc vulnerability threshold. — File
IMF Regional Economic Outlook includes Pakistan in countries where debt will remain above 60pc vulnerability threshold. — File

WASHINGTON: Pakistan’s debt level is likely to remain high in near future even if consolidation efforts go as planned, warns the International Monetary Fund (IMF) in its latest Regional Economic Outlook.

The report includes Pakistan among the list of countries where debt will remain above the 60 per cent vulnerability threshold.

“The importance of addressing the debt burden is also illustrated by the significant gains from fiscal adjustment being lost through rising interest payments,” says the report, adding that “a significant fiscal adjustment is still needed.”

The IMF projects that growth in the Middle East, North Africa, Afghanistan, and Pakistan (MENAP) region may reach 4.5pc in the current fiscal year, before moderating to 4pc in 2019.

Tracking the progress on external balances and mitigating vulnerabilities, the report mentions that “Imprudent economic policies have contributed to a surge in imports and a wider current account deficit” in Pakistan, adding that “significant dependence on oil imports leaves countries” like Pakistan “vulnerable to further rises in global fuel prices.”

If oil prices were to rise by $10 through 2019, current account deficits across the region could worsen by between 0.1 to 1.6pc of GDP, the report adds.

The IMF, however, also highlights the recent pickup in public consumption in Pakistan and relatively stable private consumption across the region which has provided moderate boost to growth. Credit expansion and improved security have also lifted growth by spurring private investment.

Private investment is expected to increase in some countries, however, lingering policy uncertainty and persistent macroeconomic imbalances along with tightening global financing conditions, “underscore risks to private investment, and thus prospects for achieving a more balanced and broad-based mix of growth,” the report warns.

Growth projections for 2018–19 have been revised downward for half of the countries under review due to low agricultural output.

“Further appreciation of the dollar and higher interest rates in the US could reinforce capital outflow pressures, which, coupled with higher oil import bills, would put additional strains on reserve buffers in some countries, particularly those with significant external financing needs, such as Pakistan,” says the IMF report.

The IMF suggests easing access to credit in Pakistan would help the private sector compete more effectively, enabling it to take advantage of external demands.

Most MENAP oil importers have exhibited a decline in their private-investment-to-GDP ratio, the trend can be seen in Pakistan since 2004.

Published in Dawn, November 15th, 2018