ISLAMABAD, MAR 07 (DNA) – In an ominous warning, the International Monetary Fund (IMF) has said that risks pertaining to Pakistan’s economic and financial outlook have increased and its medium-term debt repayment capacity has weakened, urging Islamabad to take immediate corrective measures. The IMF released the statement almost one and a half day after the conclusion of its Executive Board meeting that held the ‘first post-program monitoring discussions’ with Pakistan.
The discussions were earlier also held in Islamabad in December to gauge Pakistan’s ability to repay the IMF loan.
The IMF’s projections over the current account and budget deficits are gloomy to say the least, and cast a huge question mark on the narrative presented by former finance minister Ishaq Dar at the time of unveiling the government’s fifth budget in June last year. The IMF has projected that the country’s current account deficit will stand at 4.8% of total national income, or $16.6 billion, which is a staggering 83% higher than the government’s official estimates.
The IMF has also predicted that Pakistan’s official gross foreign currency reserves could slip to $12.1 billion – barely enough to finance 10 weeks of imports.
The directors of the IMF also asked Pakistan to improve its anti-money laundering and counter-terrorism financing regimes. They also want the country’s managers to devalue the currency to minimise damages to the external sector, and levy more taxes to control the growing budget deficit.
With “rising external and fiscal financing needs and declining reserves, risks to Pakistan’s medium-term capacity to repay the Fund have increased since completion of the Extended Fund Facility (EFF) arrangement in September 2016”, noted the IMF in its handout released Wednesday morning.
It said Pakistan’s near-term outlook for economic growth is broadly favourable and real GDP growth is expected to grow by 5.6% in fiscal year 2017-18, supported by improved power supply, investment related to the China-Pakistan Economic Corridor (CPEC), strong consumption growth, and ongoing recovery in agriculture. Inflation has remained contained.
However, it added, continued erosion of macroeconomic resilience could put this outlook at risk.
The budget deficit is expected to widen to 5.5% of GDP this year, which is equal to almost Rs2 trillion and will be the highest in Pakistan’s history in absolute terms. The official target is 4.1% of the GDP or Rs1.48 trillion.
The IMF said that the deficit may even go higher due to upcoming general elections.
The Washington-based lender also said that surging imports have led to a widening current account deficit and a significant decline in international reserves despite higher external financing. FY 2017/18’s current account deficit could reach 4.8% of GDP, with gross international reserves further declining in the context of limited exchange rate flexibility. This is equal to $16.6 billion – and far higher than $12.1 billion deficit that Pakistan has booked last fiscal year.