The Executive Board of the International Monetary Fund (IMF) concluded its Article IV consultation* with Pakistan on June 14, 2017.
Pakistan’s
outlook for economic growth is favourable, the IMF said, with real GDP
estimated at 5.3% in FY2016/17 and strengthening to 6% over the medium
term on the back of stepped-up China Pakistan Economic Corridor (CPEC)
investments, improved availability of energy, and growth-supporting
structural reforms. Inflation has been gradually increasing but remains
contained, the IMF team said, and the financial sector has remained
sound.
However, macroeconomic stability gains made under the 2013-16 IMF Extended Fund Facility
(EFF)-supported programme have begun to erode and could pose risks to
the economic outlook, the IMF warned. Fiscal consolidation has slowed,
with the 2016/17 budget deficit target of 4.2% of GDP (authorities’
latest projection) is likely to be exceeded, the IMF said.
The
current account deficit has widened and is expected at 3% of GDP in
2016/17, driven by quickly rising imports of capital goods and energy.
Foreign exchange reserves have declined in the context of a stable
rupee/dollar exchange rate. On the structural front, while the
successful implementation of business climate and financial inclusion
reforms has continued, some renewed accumulation of arrears in the power
sector has been observed, and financial losses of ailing public sector
enterprises continue to weigh on scarce fiscal resources.
IMF
Directors agreed** that the growth outlook remains favourable, but
noted that policy implementation weakened recently and macroeconomic
vulnerabilities are reemerging. They emphasised that sustained fiscal
consolidation over the medium term, in line with the Fiscal Responsibility and Debt Limitation (FRDL) Act,
is critical to strengthen economic resilience, safeguard fiscal
sustainability, and limit pressures on the current account and
international reserves.
To this end, Directors
recommended mobilising 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.
They suggested strengthening the national fiscal federalism framework
and public debt management.
Directors stressed the
importance of maintaining a prudent monetary policy stance to preserve
low inflation, and of further advancing financial sector reforms to
continue strengthening resilience and support financial deepening. They
welcomed the progress in fostering financial inclusion and implementing
the business climate reform strategy, and encouraged the authorities to
press ahead with these efforts. Directors also recommended further
strengthening social safety nets.
*Under Article IV of the IMF's Articles of Agreement,
the IMF holds bilateral discussions with members, usually every year. A
staff team visits the country, collects economic and financial
information, and discusses with officials the country's economic
developments and policies. On return to headquarters, the staff prepares
a report, which forms the basis for discussion by the Executive Board.
**At
the conclusion of the discussion, the MD, as Chairman of the Board,
summarises the views of Executive Directors, and this summary is
transmitted to the country's authorities. An explanation of any
qualifiers used in summings up can be found here.