WASHINGTON: The International Monetary Fund warned Pakistan Monday over its widening fiscal deficit and slow growth, saying the economy remains deeply at risk to both internal and external shocks.
The IMF said Pakistan's economy would speed up to a 3.4 per cent growth pace in fiscal 2011-2012, which runs to June 30, compared to 2.4 per cent last year.
But that was less than half the pace needed to absorb two million new workers in the market every year, it said, while unemployment and underemployment remain higher than the official 6.6 per cent rate.
At the same time, loose money policies by the State Bank of Pakistan, meant to help the economy grow, continue to feed double-digit inflation.
The economy is “highly vulnerable with few buffers to absorb shocks,” the Fund said in an annual report.
It noted that political resistance has prevented a needed effort by the government to increase revenues to cover its budget shortfall, with the result that the deficit will expand to about 7.0 per cent of gross domestic product this year from 6.6 per cent last year.
The country's foreign balance is weakening, with exports expected to fall in US dollar value by 1.8 per cent percent, partly due to falling cotton prices.
Meanwhile the central bank's intervention to support the rupee had led to a $2 billion fall in reserves in the past six months, the fund said.
The IMF warned of “considerable downside risks to this already difficult baseline,” citing both the challenging global economic environment and, inside Pakistan, coming senate and parliamentary elections.
In their comment on the report, the IMF executive directors urged the government to boost revenues and tighten its “too accommodative” monetary policy.
“Central bank financing of the budget needs to be curtailed, and greater operational independence of the central bank needs to be secured.”
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