Pakistan’s economy is expected to grow by 5.6 percent in the current fiscal year that will go through June, 2018, but the country still face important near-term challenges it must overcome to preserve its hard-earned macroeconomic stability.
An International Monetary Fund (IMF) held the first post-program monitoring discussion since South Asia’s second biggest economy successfully concluded an Extended Fund Arrangement program with the IMF under which it received $6.6 billion loan to stave off a balance of payment of crisis the country faced in 2013.
The IMF has praised Pakistan for successfully completing the program that has helped the economy to stabilize and achieve macroeconomic stability. The IMF Staff mission visited the country from Dec. 5-14.
The talks were held in Islamabad for the first time in four years that IMF delegation leader Harald Finger said was reflective of the improving security situation in the country hit hard by terrorism in recent years.
Dubai has been the venue of Pakistan-IMF talks for four year as the country was not considered safe for the IMF team to travel.
In a statement issued after the meeting, IMF noted the continuing favorable growth momentum sand said that it expected the economy to grow by 5.6 percent in the current financial year, supported by improved security conditions, energy supply, infrastructure investment and agriculture.
“Strengthening the economy’s resilience will be important to maintain Pakistan’s favorable growth momentum and ensure sustainable private investment and job creation in the medium term,” Mr. Finger said in the statement.
However, he said that while economic growth has been accelerating and inflation remains subdued, Pakistan is facing important near-term economic challenges.
“Surging imports have led to a decline in international reserves despite higher external financing. The increase in the fiscal deficit last year has added to these trends. Inter-company arrears in the power sector continue to accumulate and need to be addressed decisively.”
While Pakistan has taken steps to address these challenges, the IMF official said that greater efforts were required to prevent a further build-up of vulnerabilities and preserve Pakistan’s hard-won macroeconomic stability.
“In this context, the move by the State Bank of Pakistan (SBP) to allow adjustment of the exchange rate in recent days is welcome,” Mr. Finger said. Pakistan’s Central Bank this month allowed market forces to determine the rupee-dollar parity, something which it has resisted for years.
The IMF said that the continued exchange rate flexibility in the period ahead will be important to facilitate external adjustment in support of exports and economic growth.