IMF expresses concern at Paks weakening economy

The IMF has expressed concern over Pakistans weakening macroeconomic situation, including widening external and fiscal imbalances, reduction in foreign exchange reserves and emerging risks to economic and financial outlook, a media report said today.
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 USD 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 Dawn newspaper reported.

The board expressed its anxiety over the deteriorating assessment that the countrys fiscal deficit was set to hit 5.5 per cent of GDP almost Rs 505 billion higher than 4.1 per cent budgeted by the government and current account deficit to touch 4.8 per cent of GDP with the economic growth rate staying conservative at 5.6 per cent instead of budgeted 6 per cent.
The IMF said the near-term economic growth outlook was broadly favourable but "continued erosion of macroeconomic resilience could put this outlook at risk".
"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 5.6 per cent during the fiscal year in 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 5.4 per cent.
Following significant fiscal slippages last year and current year deficit estimated at 5.5 per cent of GDP, with risks towards a higher deficit ahead of the 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 Pakistans 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, the report said.
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, it said.

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.