Pakistan faces 'major economic challenges', economy at critical juncture: IMF
WASHINGTON: Pakistan faces significant growth due to weak and unbalanced growth, and its economy is at a critical time when it needs an ambitious and bold set of reforms, the IMF said.
Pakistan, with a shortage of cash, which currently has a foreign exchange reserve of less than $ 8 billion, enough to cover only 1.7 months of imports, approached Washington. International Monetary Fund (IMF) in August 2018 for a rescue package after the government of Imran Khan took over.
Last week, the global lender formally approved the $ 6 billion loan to Pakistan, which faces significant economic challenges due to large fiscal and financial needs and weak and unbalanced growth.
Pakistan faces significant economic challenges due to large fiscal and financial needs and weak and unbalanced growth, said David Lipton, Deputy First Director and Acting Chairman of the IMF Executive Board.
Last week, the IMF approved the 13th rescue package for Pakistan since the late 1980s.
The last rescue package has a value of $ 6 billion, of which $ 1 billion will be disbursed immediately and the rest in the next three years.
Significant fiscal consolidation is key to reducing large public debt and increasing resilience, and adopting the budget for fiscal year 2020 is an important initial step, said Lipton.
Achieving fiscal objectives will require a multi-year income mobilization strategy to broaden the tax base and increase tax revenues in a balanced and equitable manner, he said.
It will also require a strong commitment on the part of the provinces to support the consolidation effort and effective public financial management to improve the quality and efficiency of public spending, he said.
Noting that protecting the most vulnerable from the impact of adjustment policies will be an important priority, Lipton said this will be achieved through a significant increase in resources allocated to key social assistance programs, support measures for the economic empowerment of women and investment in areas where poverty is high
A flexible exchange rate determined by the market and a properly adjusted monetary policy will be key to correct imbalances, rebuild reserves and keep inflation low, he said, adding that an ambitious agenda to strengthen institutions and eliminate impediments to growth will allow to Pakistan reach its maximum economic potential.
In an accompanying report, the IMF said it is at a critical moment.
The legacy of misaligned economic policies, which include large fiscal deficits, flexible monetary policy and defense of an overvalued exchange rate, fed consumption and short-term growth in recent years, but constantly eroded macroeconomic buffers, increased public debt and external and exhausted international reserves.
The structural weaknesses remained largely unresolved, including a chronically weak tax administration, a difficult, inefficient business environment and loss-making state enterprises in the midst of a large informal economy.
Without urgent political measures, economic and financial stability could be at risk, and growth prospects will be insufficient to meet the needs of a rapidly growing population, the IMF said.
The IMF-backed program is expected to merge with broader support from multilateral and bilateral creditors that exceeds $ 38 billion, which is crucial for Pakistan to meet its large financing needs in the coming years, he added.
Pakistan has received billions in financial aid packages from friendly countries such as China, Saudi Arabia and the United Arab Emirates during the current fiscal year.