EUR 4.36 For Business Accounts Only

Intermarket Pulse: Pakistan Economy: IMF advises same policy prescriptions; concerns on external front

• In its Post-Program Monitoring Discussions, IMF expects Pakistan to achieve GDP growth of 5.6% and inflation to remain contained (avg. 5.0%) in FY18. However, it is concerned about the present external/fiscal imbalances; which, if let to widen at the current rate, could undermine growth and Pakistan’s capacity to repay IMF.    
• The major policy recommendations are greater exchange rate adjustment, monetary tightening, containing fiscal deficit to 5.0% of GDP, and addressing circular debt buildup through power tariff surcharges. Pakistani authorities are optimistic about the efficacy of recent PKR depreciation and administrative measures in containing imports, but they concur with the need for the other policy recommendations.
• IMF’s criteria of the maximum a country can borrow is 435% of its quota (Pakistan: SDR 2.03bn or US$2.94bn) cumulatively or 145% annually. We estimate that this translates to a max cumulative loan of ~US$13bn from IMF to Pakistan at one time; recall Pakistan has about US$6.4bn of IMF loan already.