Pakistan Economy_Key takeaways from IMF PPM discussion
The IMF recently concluded its first Post-Program Monitoring (PPM) discussions with Pakistan, adopting a cautious tone on the country's ability to sustain recent macroeconomic gains. The fund highlighted the external and fiscal imbalances, pressures on FX reserves and debt sustainability as key risks to the sustainability of Pakistan's favorable growth momentum. The fund projects CAD to rise to 4.8% of GDP in FY18F (vs 4.1% of GDP in FY17) on account of accommodative fiscal deterioration during the last FY, monetary policy and rising CPEC related imports. While in their opinion Pakistan needs to focus on near term policies including: 1) greater exchange rate flexibility, 2) monetary tightening and 3) phasing out administrative measures aimed at supporting BoP. On the fiscal front, in the absence of structural reforms to enhance revenue measures and restrict current expenditure slippages, IMF expects fiscal deficit to clock in at 5.5% of GDP compared to GoP's target of 4.1%. Urging for fiscal consolidation, the fund also highlighted concerns on debt sustainability and the need for caution against new external liabilities in light of significant decline in FX reserves. On the positive side, the fund remains favorable on Pakistan's growth momentum (projecting real GDP growth of 5.6%YoY in FY18F) citing improved power structure, CPEC related investments, strong consumption and recovery in agriculture sector as key positives. .
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