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February 16, 2020

Falling Global Commodity Pries Pose Risks to Pakistan’s Fiscal Targets

Pakistan has told the International Monetary Fund (IMF), it would take additional measures to boost revenues to mitigate risks to the fiscal targets in the wake of falling commodity prices in the international market.

In a Letter of Intent posted on IMF’s official website, Pakistan’s Finance Ministry said that declining commodity prices may impact efforts to achieve the fiscal deficit set for the current fiscal year.

“We stand ready to take additional revenue measures to attain our budget deficit target of 4.3 percent of GDP (excluding grants) in FY2015/16,” the ministry said in the letter and attached Memorandum of Economic and Financial Policy, sent to the IMF on September prior to the fund’s Executive Board meeting.

The Board which met on Sept. 28 completed the 8th review of Pakistan’s economic performance under a 3-Year program and released $504 million tranche of a loan acquired in 2013.

The LOI is a ritual a country follow to share its future course of action with the IMF to be able to achieve targets set by the lending agency.

Pakistan missed the deficit target in the last financial year that ended on June 30, but is expected to achieve the target for the current year, though it admits that a slump in global commodity market could pose a risk. Falling commodity prices may also hurt Pakistan’s revenue target.

“To mitigate these risks, we would take additional revenue measures, including to bring forward plans to eliminate SROs slated for 2016–17,” the Finance Ministry said in the letter, referring to Statutory Regulatory Order the government used to give exemptions to certain industry or sector.

Pakistan told IMF that for program purpose, the real GDP growth will reach about 4.5 percent in the current fiscal year, although the government was aiming to raise it to 5.5 percent.

“Risks are broadly balanced. Lower oil prices, planned improvements in the supply of gas and electricity, and investment related to the China Pakistan Economic Corridor (CPEC) are supporting growth, while the recent deceleration of private credit growth and export weakness constitute downside risks.”

Headline consumer price inflation fell to historic lows at 1.7 percent year-on-year in August, mainly driven by lower food and energy prices. The inflation is  expected to increase to around 4¾ percent on average in FY2015/16, due to a likely bottoming out of commodity prices, but to remain well-anchored by continued prudent monetary and fiscal policies.


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