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January 17, 2020

IMF Praises Pakistan’s Economic Recovery But Warns of Risks

International Monetary Fund (IMF) has praised Pakistani authorities for reforms to achieve macroeconomic stability, but warns of risks posed to the outlook by declining exports, rising imports and falling reserves.

In a recent statement issued after talks with the Pakistani authorities and assessment by its Executive Board, the IMF estimated real GDP growth in Pakistan at 5.3 percent in FY 2016/17 and strengthening to 6 percent 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.

After touching an all-time low, inflation has begun to gradually increase but remains contained and financial sector has also shown positive trends.

But, the IMF warned that the macroeconomic stability gains made under the 2013-16 EFF-supported program have begun to erode and could pose risks to the economic outlook. For the first time, Pakistan successfully completed a program with the IMF under which it received $6.6. billion assistance under the Extended Fund Facility (EFF) started in September, 2013.

The IMF loan helped Pakistan stave off an imminent Balance of Payment crisis toward the end of 2013, and its program helped achieved economic and financial stability. But, while noting improvement, IMF said that pace of fiscal consolidation has slowed.

Pakistan is expected to miss a 4.2 budget deficit target for the year that ended June 30, 2017.

The current account deficit has widened and is expected at 3 percent 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, IMF said that 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.

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