ISLAMABAD - The International Monetary Fund (IMF) on Monday yesterday pained a mixed picture of Pakistan’s economy, saying the country was a better fiscal position now but expressed concern on some serious troubles.
Addressing a seminar on “Emerging Markets” in Islamabad, IMF Managing Director Christine Lagarde expressed concern that the public debt remains high and perception of corruption deters private investment and impedes efforts to promote sustainable and inclusive growth.
Lagarde however said Pakistan was now in a better fiscal position and certainly out of economic crisis.
The economic growth has gradually increased; fiscal deficit has reduced while inflation has continuously declined in Pakistan, she added.
On soaring public debt she said, “Despite the significant fiscal consolidation achieved under the (IMF) program, public debt remains high, at about 19 trillion rupees, or 65 percent of GDP. This debt needs to be serviced and, at current levels, the interest bill is larger than Pakistan’s entire development budget. To place debt on a downward trajectory, action is needed on both revenue and expenditures,” she opined.
The IMF MD further said that although direct social and economic losses are difficult to measure, even a perception of corruption deters private investment and impedes efforts to promote sustainable and inclusive growth. Increasing transparency and accountability and removing red tape can help, she said, noting that Pakistan ranks 117 out of 168 countries in perceived corruption.
She also noted that education outcomes in Pakistan remain weak. One out of every 12 children in the world that does not attend school lives in Pakistan. Access to education is a key concern for the Pakistani citizen. Bolstering public investment in education from 21/2 percent of GDP to emerging market average - around 4 percent of GDP - will be essential to prepare the workforce with the necessary skills and make Pakistan more competitive on the global market, she remarked.
Christine Lagarde noted that growth of remittances from GCC countries, which account for nearly two thirds of total such inflows to Pakistan, also slowed. She admired the power reforms, which brought down the power outages from about nine hours to one hour per day for industries, and from eight to five hours for urban consumers. Similarly, she said that government has reduced the power subsidies and amount of circular debt.
MD IMF expressed concerns over the declining investment and exports of the country. Sharing details, she said that private investment in Pakistan accounts for only 10 percent of the economy, which is about 18 percent in emerging markets. Pakistan’s exports are about 10 percent of GDP; emerging markets’ exports are nearly four times as high. However, she said that continuing support for projects under the China-Pakistan Economic Corridor will not only promote growth and job creation, but will also facilitate regional integration.
Lagarde said Pakistan need to rely on the strength of its own policies to generate more growth and jobs, and to join the group of dynamic emerging markets.
“Every year, more than two million young people enter the job market in this country. This could be a tremendous opportunity for growth. But it also presents challenges. How can you absorb so many new job seekers when the global economy is growing so slowly?” she remarked.
“Just three years ago, the country was on the brink of an economic crisis. Today, and thanks to the authorities’ homegrown program of reforms that the IMF supported, the economy is on a much stronger footing. Public finances have improved considerably, external reserve buffers have been rebuilt, and growth has been gradually strengthening. These are very encouraging developments” she went on saying.
IMF MD said that emerging markets are undergoing transitions of their own-shifts that create challenges but also opportunities. She mentioned two that are particularly relevant for Pakistan including a slowing Chinese economy means fewer exports from Pakistan. “A much lower oil import bill drove a marked improvement in your country’s external balances and benefited consumers and businesses,” she added.
Christine Lagarde also called on Prime Minister Nawaz Sharif at PM House. The PM on this occasion said his government has achieved economic stability by pursuing a comprehensive reforms agenda. He added that the tireless efforts of the economic team of the government have turned around the Pakistani economy in a short span of three years.
“We are successfully delivering on the major challenges of terrorism, economy and power shortages that we inherited from the previous governments,” he added.
IMF official lauded the prime minister for steering the country out of multiple challenges and achieving macroeconomic stability in a short period of time.
Christine Lagarde congratulated him on successfully completing the IMF programme which has helped Pakistan restore its macroeconomic stability, reduce vulnerabilities and make progress in tackling key structural challenges.
“It is a fantastic step in your journey that you have achieved a better and solid economic position in a brief period of two years,” she said.