ISLAMABAD - The International Monetary Fund (IMF) has noted that Pakistan will need $38 billion in coming years to meet its large financing requirements.

“The Fund-supported program is expected to coalesce broader support from multilateral and bilateral creditors in excess of US$38 billion, which is crucial for Pakistan to meet its large financing needs in the coming years,” the IMF has stated in its handout released after approving $6 billion 39-Month Extended Fund Facility Arrangement for Pakistan.

The IMF has projected that Pakistan’s growth rate would remain lower, budget deficit and debt to GDP will further increase in the ongoing fiscal year. The country’s GDP will remain at 2.2 percent during ongoing fiscal year, which will be lower than 3.3 percent growth recorded in previous year.

Meanwhile, Pakistan’s budget deficit excluding grants will remain at 7.3 percent of the GDP in current fiscal year, which will be higher than the deficit of 7 percent of the GDP projected for previous year. Similarly, debt to GDP will go up to 76.9 percent in 2019-20 as compared to 74.9 percent of year 2018-19.

Says misaligned economic policies fuelled short-term growth in recent years

The inflation rate will also increase in the current financial year. According to the Fund’s estimates, consumer prices (period average) are projected at 13 percent in 2019-20 as compared to 7.3 percent of the previous year. However, the current account deficit will come down to 2.6 percent of the GDP from 4.6 percent of the GDP of last fiscal year. The current account deficit will reduce due to 8.2 percent increase in exports and 4.7 percent reduction in imports of the country during ongoing fiscal year. The country’s foreign exchange reserves will improve to $11.19 billion in the year 2019-20 from only $6.8 billion of the previous year.

According to the IMF, Pakistan’s economy is at a critical juncture. The legacy of misaligned economic policies, including large fiscal deficits, loose monetary policy, and defence of an overvalued exchange rate, fuelled consumption and short-term growth in recent years, but steadily eroded macroeconomic buffers, increased external and public debt, and depleted international reserves. Structural weaknesses remained largely unaddressed, including a chronically weak tax administration, a difficult business environment, inefficient and loss making SOEs (state owned entities), amid a large informal economy. Without urgent policy action, economic and financial stability could be at risk, and growth prospects will be insufficient to meet the needs of a rapidly growing population.

The government’ comprehensive economic reform program, supported by the EFF, aims to stabilise the economy and lay the foundation for robust and balanced growth. A decisive fiscal consolidation to reduce public debt and build resilience has started with the adoption of an ambitious FY 2020 budget. The adjustment will be supported by comprehensive efforts to drastically increase revenue mobilisation by 4 to 5 percent of GDP at the federal and the provincial level over the programme period. A flexible, market-determined exchange rate to restore competitiveness, rebuilds official reserves, and provides a buffer against external shocks. This will be supported by an appropriate monetary policy to shore up confidence and contain inflation, conducted by an independent central bank.

Energy sector reforms will eliminate quasi-fiscal losses and encourage investment, including by depoliticizing gas and power tariff setting and over the programme period, gradually bringing the sector to cost recovery; and structural reforms through strengthening institutions, increasing governance and transparency, and promoting an investment-friendly environment necessary to improve productivity, entrench lasting reforms, and ensure sustainable growth.

“Protecting the most vulnerable from the impact of adjustment policies will be an important priority. This will be achieved by a significant increase in resources allocated to key social assistance programmes, supporting measures for the economic empowerment of women, and investment in areas where poverty is high.

“An ambitious agenda to strengthen institutions and remove impediments to growth will allow Pakistan to reach its full economic potential. Addressing structural weaknesses in the energy sector and improving the governance of state-owned enterprises will ensure efficiency and better services, thus boosting economic activity. Moreover, improving the business climate, strengthening efforts to fight corruption, and enhancing the AML/CFT framework will create an enabling environment for private investment and job creation.

“The strong financial support to authorities’ policy efforts by Pakistan’s international partners is essential to meet the large external financing needs in the coming years and allow the programme to achieve its objectives.”