IN one of the bleakest assessments of Pakistan’s economy, the IMF has warned that the “moment of opportunity” earned through macroeconomic stabilisation over the past few years is now at risk of unravelling. A short note issued at the conclusion of its last Article IV consultation — a regular exercise that the Fund carries out with all its member countries — warns of renewed pressures building on the fiscal and external accounts, as well as the re-emergence of the circular debt. This year’s fiscal deficit target of 4.2pc is “likely to be exceeded” and next year’s budget “will likely require additional revenue measures”, the Fund warns. On the external front, it notes the widening of the current account deficit which will reach 3pc of GDP by year’s end, a near tripling in three years. In a somewhat cryptic line, it says “[f]oreign exchange reserves have declined in the context of a stable rupee/dollar exchange rate”, suggesting that the government is providing administrated support to the rupee; it calls on the government to “allow for greater exchange rate flexibility”.

On the structural side, the report points to continued bleeding of the public-sector enterprises as well as “renewed accumulation of arrears in the power sector” as serious impediments to the sustainability of growth. Although it hails investments under CPEC as growth drivers, it also highlights a possible “failure to generate sufficient exports to meet rising external obligations from large-scale foreign-financed investments” as a key external risk facing the economy. It also appears to frown upon recent moves to water down the powers of Nepra by specifically calling for “maintaining a strong regulatory framework in the energy sector”. As is customary for Fund pronouncements, the latest release also begins on a positive note by saying that the outlook on growth is favourable as the growth rate is expected to rise to 6pc by next year. But the warnings that follow are enough of a reminder that there is more to managing an economy than the growth rate. The complete and detailed Article IV report will be released soon now that it has been approved by the board, and if the early statement following its approval is anything to go by, the government’s narrative of having turned the economy around is likely to be challenged by its contents. Given this is an election year, it is improbable that any of the warnings being sounded will find a receptive ear.

Published in Dawn, June 18th, 2017