ISLAMABAD: The IMF has expressed its optimism about Pakistan’s economic growth to accelerate to about 3.7pc over the next fiscal year and further rise in the medium-term as fiscal adjustment eases and structural reforms alleviate constrains in the energy sector.
The fund said that the policy reforms are crucial to restore stable growth while governance issues, capacity constraints and lack of implementation momentum would discourage investment.
In its report for the first review of the extended fund facility, the IMF also warned that that policy implementation risks could depress growth.
The report warned that there is a fear of disordered forex market conditions which can give birth to serious problems if reserves accumulation is not pursued or if accumulation process is not managed well.
The fund was of the view that keeping in view the oil price shocks, the country is vulnerable to inward remittance spillovers if economic conditions in GCC countries are to worsen or if expatriate workers reduce transfer out of concerns about conditions within Pakistan while a global slowdown could weaken exports.
The report said the security situation continues to depress investment and growth. Overall GDP is expected to expand by 2.8pc which represents 0.3pc higher than initial IMF programme forecast.
It pointed out that with reforms in the energy sector, manufacturing sector is expected to expand faster than expected initially, although growth in the agriculture sector in cotton production, in particular, is projected to be slow.
The report also projected the inflation to remain around 10pc in the second of the current fiscal year before easing to around 7pc in fiscal 2014-15, as inflation expectations will be anchored by prudent monetary policy and stable macroeconomic policies.
The current account deficit is expected to be about 1pc of GDP, higher than the initial programme forecast by about 0.4pc of the GDP.
Imports are expected to grow by 8pc, and exports are expected to grow more slowly. Debt sustainability outlook has remained broadly unchanged relative to the EFF request. External debt is expected to decline to about 22pc of GDP in the medium term under the baseline scenario.
The debt sustainability analysis shows, however, how external debt is susceptible to sharp exchange rate depreciation or current account shock. In the case of Pakistan, the likely drivers of a non-interest current account shock would be a decline in remittances, or a rise in oil prices.
