Summary The report depicts a bleak picture as opposed to the positive one given by government officials.
(Web Desk) - The International Monetary Fund on June 14 concluded the Article IV consultation with Pakistan and has warned of risks to recent progress made in the country. The international agency has said that even though the country s outlook for economic growth was favourable, its macroeconomic gains made in the past few years have eroded.
The Article IV consultation is an annual consultation between IMF and its member states aiming to assess the economic health of the country and to prevent future financial problems.
In a press release issued on June 16, the International Monetary Fund released the details of the consultation with Pakistan. The report depicts a mostly bleak economic situation in Pakistan as opposed to the positive picture portrayed by government officials in Pakistan.
An important revelation in IMF s report is that the government debt (as percentage of GDP) is 66.6 percent as opposed to the 59.3% as claimed by Finance Minister Ishaq Dar this week. The total debt as reported by IMF is over Rs21.2 trillion while Ishaq Dar claimed it was Rs18.9 trillion.
The IMF has revealed that the macroeconomic stability gains made between 2013-2016 have eroded and pose risks to the economic outlook of the country. Fiscal consolidation has slowed down, with the international agency reporting that the budget deficit target of 4.2 percent of GDP, set in the 2016/2017 budget is likely going to be exceeded.
Moreover, the current account deficit has widened and is expected to be 3 percent of GDP in 2016/17, driven by rapidly rising import of capital goods and energy. Foreign exchange reserves have reduced in the context of a stable rupee/dollar exchange rate. According to reports in media, in just past two weeks, the official foreign currency reserves decreased over $1.5 billion.
The global monetary organisation has identified the following external risks; lower trading partner growth, tighter international financial conditions, a faster rise in international oil prices, and over the medium term, failure to generate sufficient exports to meet rising external obligations from large-scale foreign-financed investments.
However, the IMF has reported Pakistan s outlook for economic growth as favourable with real GDP estimated at 5.3 percent in fiscal year 2016/17 and strengthening to 6 percent over the medium term. This has resulted from China-Pakistan Economic Corridor (CPEC) investments, improved availability of energy, and structural reforms that support growth. Moreover, inflation has been gradually increasing but remains contained, and the financial sector has remained sound.
Recommendations:
IMF directors have called on authorities to safeguard the macroeconomic gains of recent years through the implementation of financially sound and prudent policies. Moreover, they noted that the State Bank of Pakistan should be ready to tighten monetary policy in case inflationary pressures emerge,
Futhermore, IMF directors also stressed the fact that progress needs to be made in the structural reform agenda in order to make growth more inclusive and to reduce poverty.
According to the IMF report, they also recommended mobilizing additional tax revenues by broadening the tax base and strengthening tax administration; and enhancing the composition of public spending by containing the wage bill’s growth, further reducing electricity subsidies, and increasing priority social spending.
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