Pakistan’s economic performance has weakened

The International Monetary Fund (IMF) on Monday said that while external pressures are mounting, Pakistan’s economic performance has weakened and the country continues to fall short of its economic potential.
The fund also projected Pakistan’s dollar reserves to deplete to $ 12.1 billion from the current $ 16.8 billion by the end of the fiscal year. “The beginning of repayments to the IMF will likely put further pressure on the balance of payments this year,” the IMF said. SBP is accommodative: The international lending agency was also critical of the State Bank of Pakistan (SBP) for its “more accommodative” monetary policies saying the central bank was directly or indirectly financing the fiscal deficits. In its February 3 Executive Board’s assessment, the Fund called upon Islamabad to reorient macroeconomic and structural policies to stem near-term risks to macroeconomic stability, and to lay the foundation for durable and inclusive growth over the medium term. Welcoming the Pakistani authorities’ intention to reduce the fiscal deficit, the IMF directors encouraged them to take more resolute action to mobilise revenues and rationalise public expenditure. In particular, the directors saw merit in broadening the tax base, restructuring public enterprises, eliminating poorly targeted subsidies, and phasing out commodity procurement operations. They recommended strengthening the framework for fiscal devolution and the incentives for provincial governments to raise revenue. “Monetary policy is now too accommodative, and should be tightened if inflation or external pressures increase,” they said. The bank asked Pakistan to take immediate measures to stabilise growing budget pressures and raise interest rates to contain rising inflation. The IMF projected a widening of Pakistan’s budget deficit in fiscal 2011/12 to 7 percent of gross domestic product, much higher than the government’s revised budget target of 4.7 percent. It said central bank financing of the budget needs to be curtailed. Improve India relations: Separately, noting that investment climate in Pakistan is not good, the IMF said improving relations with India and the recent WTO tariff exemptions for 75 items should help the country to overcome its current economic crisis.
The IMF mission chief for Pakistan Adnan Mazarei in a conference call with reporters after concluding its consultation with Pakistan said the country’s security scenario and general economic health are a problem, even though its leaders have taken some steps to address the situation. Mazarei said it is correct to say that Pakistan economy is facing huge vulnerabilities and risks. It is because of growing global economic pressures and it needs to build buffers, he added. He said the investment climate in Pakistan is not very good, and steps need to be taken to attract it. “Improving relations with India and WTO tariff exemptions for 75 items recently should help Pakistan,” the IMF official said in response to a question.