ISLAMABAD: The International Monetary Fund (IMF), Wednesday, said that Pakistan in a position to build on recent progress with reforms to set the economy on a higher growth path.
Near-term economic policies need to address challenges in the fiscal, external, and energy sectors to safeguard the hard-won stability gains. Maintaining the momentum with growth-enhancing structural reforms and expanding social safety nets will be important in the period ahead
IMF after successful conclusion of Article -IV consultations in Dubai sated Pakistan had strengthened macroeconomic resilience and economic outlook, providing an opportunity to build on recent progress with structural reforms and set the economy on a higher growth path after three years economic reforms.
However, a number of challenges in the fiscal, external, and energy sectors could affect the hard-won stability gains in the period ahead. In this context, the mission calls for strong efforts with respect to fiscal consolidation and the implementation of key structural reforms, and vigilance in managing the country’s external position.
IMF and Pakistan held Article-IV Consultations from March 28 to April 05, IMF team as led by Harald Finger while Finance Minister Ishaq Dar led Pakistani team in the talks. The IMF Mission Chief Harald Finger said that the team expected economic growth to reach 5% in FY2016/17 helped by improving global economic conditions, rising investment related to the China-Pakistan Economic Corridor (CPEC), and recovering agriculture. At the same time, slower-than-expected growth of large-scale manufacturing and stagnant exports are weighing on growth prospects.
The current account deficit is expected to reach 2.9% of GDP in FY2016/17 owing to a higher trade balance—in part reflecting increased imports of capital goods and energy—and stagnant remittances, while average headline inflation is expected to be contained at 4.3%.
Over the medium term, growth could accelerate to about 6% on the back of stepped-up CPEC and other investments, improved energy supply, and continued structural reforms.
Moreover, Harald Finger stated that economic policies in the period ahead needed to focus on preserving the hard-won stability and addressing emerging as well as medium-term challenges, notably in the fiscal, external, and energy sectors. Stronger fiscal consolidation efforts will be needed to make up for the lower-than-expected revenue in the first half of this year and achieve a further deficit reduction next year.
Greater exchange rate flexibility and efforts to improve export sector productivity are needed to address the widening trade deficit as well as strengthen the economy’s ability to absorb medium-term CPEC-related and other capital outflows.
Bringing the power distribution sector to full cost recovery will be critical to ensure long-term success of new energy initiatives and minimize fiscal costs. Alongside, monetary policy needs to remain prudent.
Discussions also focused on the reforms needed to enhance Pakistan’s social safety nets, restructuring and seeking private sector participation in loss-making public enterprises, promoting financial inclusion and deepening, and improving the business climate.
.
