ISLAMABAD - The International Monetary Fund (IMF) has projected Pakistan’s economic growth to reach 5 percent in the ongoing financial year 2016-17 as against government’s projection of 5.7 percent.

“The (IMF) staff team expects economic growth to reach 5 percent in FY 2016/17 helped by improving global economic conditions, rising investment related to the China-Pakistan Economic Corridor (CPEC), and recovering agriculture,” said IMF staff team head Harald Finger in a statement after holding Article IV Consultation with Pakistan’s economic team in Dubai from March 28 to April 5.

Pakistan has also revised the budget deficit target to 4.1 percent of the GDP from budgetary estimates of 3.8 percent of the GDP due to lower tax collection and soaring expenditures.

Finger said that slower-than expected growth of large-scale manufacturing and stagnant exports are weighing on growth prospects. The current account deficit is expected to reach 2.9 percent of GDP in FY 2016/17 owing to a higher trade balance — in part reflecting increased imports of capital goods and energy — and stagnant remittances, while average headline inflation is expected to be contained at 4.3 percent. Over the medium term, growth could accelerate to about 6 percent on the back of stepped-up CPEC and other investments, improved energy supply, and continued structural reforms.

“After three years of reforms, Pakistan has strengthened its macroeconomic resilience and economic outlook, providing an opportunity to build on recent progress with structural reforms and set the economy on a higher growth path. However, a number of challenges in the fiscal, external, and energy sectors could affect the hard-won stability gains in the period ahead. In this context, the mission calls for strong efforts with respect to fiscal consolidation and the implementation of key structural reforms, and vigilance in managing the country’s external position,” IMF Mission chief noted.

“Economic policies in the period ahead need to focus on preserving the hard-won stability and addressing emerging as well as medium-term challenges, notably in the fiscal, external, and energy sectors. Stronger fiscal consolidation efforts will be needed to make up for the lower-than-expected revenue in the first half of this year and achieve a further deficit reduction next year. Greater exchange rate flexibility and efforts to improve export sector productivity are needed to address the widening trade deficit as well as strengthen the economy’s ability to absorb medium-term CPEC-related and other capital outflows. Bringing the power distribution sector to full cost recovery will be critical to ensure long-term success of new energy initiatives and minimise fiscal costs. Alongside, monetary policy needs to remain prudent.

“Discussions also focused on the reforms needed to enhance Pakistan’s social safety nets, restructuring and seeking private sector participation in loss-making public enterprises, promoting financial inclusion and deepening, and improving the business climate. Maintaining the reform momentum will be critical for Pakistan to achieve its broader economic objectives, and continued effort will be important in the period ahead.

Finance Minister Ishaq Dar, while talking to media in Dubai, said “Pakistan and the IMF have today successfully completed Article IV consultations. These discussions are an annual feature and are conducted under Articles of Agreement of the Fund. Successful completion of these discussions is indicative of government’s continued commitment in further deepening of structural reforms in the areas of energy, monetary, financial and public sector enterprises,” he added.

He further said, “We are expecting a growth above 5 percent during ongoing financial year, which will be the highest in the last nine years. The overall economic environment is conducive backed by an accommodative monetary policy as policy rate at 5.75 percent is the lowest in last few decades,” he said.

Sharing details of economic situation, the finance minister said that inflation stood at 4.01 percent during nine months (July-March) of the year 2016-17 as compared to last year's 2.64 percent reflecting higher domestic demand and increase in global commodity prices. The large scale manufacturing (LSM) sector continues to grow at 3.5 percent with increase in production of cement, steel, pharmaceuticals, automobiles, paper & board and electronics.

“We are also committed to reduce net public debt which was 60.2 percent at close of FY 2016 in order to lay the foundations for sustained growth,” Dar said. He said that despite reducing fiscal deficit over the last three years, allocation for Public Sector Development Programme (PSDP) had more than doubled and during FY 2017, the budget deficit (borrowing) will be only for its development spending, which is a milestone achievement.

Talking about tax collection, he said that FBR had collected Rs2258 billion during July-March of the current fiscal year. the FBR is facing shortfall due to the pro growth incentives offered to various sectors of the economy particularly exports and agriculture; major item of revenue gap amounting to Rs 100 billion was due to not passing the full impact of the POL prices to the common man.

Dar said that current account deficit increased to $ 5.5 billion in Jul-Feb FY17, which was largely due to a sizable increase in imports of capital goods, along with delayed receipts of Coalition Support Fund (CSF). The rise in overall import payments was mainly driven by increased purchases and higher prices of fuel. However, there was significant increase in capital goods imports, which will lead the economy to a higher growth path. “At present, our foreign exchange reserves are hovering around $ 22 billion, which are expected to reach over $ 23 billion by June-end 2017,” the finance minister said.

Talking about social protection, he said that government had increased this budget by over 300 percent through the four budgets of the current government. The BISP budget was enhanced from Rs.40 billion in FY 2013 to Rs.115 billion in FY 2017 leading to increase in coverage from 3.7 million to 5.45 million families. Similarly, the annual stipend was also been enhanced from Rs.12,000 to Rs.19,336 during this period and the government had disbursed more than Rs.299 billion to the poorest families, as unconditional cash transfers.

“Pakistan has undertaken two important initiatives. First, on 21st March, it signed the revised Avoidance of Double Taxation Agreement with Switzerland. Second, Pakistan signed on 14th Sept2016 the OECD's Multilateral Convention on Mutual Administrative Assistance in Tax Matters. These initiatives would help reduce and prevent tax evasion in future”, Dar noted.