ISLAMABAD - Talks between Pakistan and International Monetary Fund (IMF) for new loan programme started here yesterday.

The IMF team will meet officials of the ministry, the Federal Board of Revenue and the State Bank during its visit. The two sides will discuss possibility of a $7-8 billion loan for Pakistan. Pakistan in October 2018 had requested IMF for fresh loan programme for improving its external sector. The talks will continue in two parts, technical and policy level, which will end on May 10.

Meanwhile, the IMF has projected that Pakistan’s GDP growth will decline to 2.9 percent during ongoing fiscal year from 5.2 percent of the previous year. IMF in its latest report “Economic Outlook (REO) Update, Middle East, North Africa, Afghanistan, and Pakistan (MENAP)” states that regional inflation is projected to pick up slightly to 11.3 percent in 2019, primarily due to higher inflation in Egypt (fuel subsidy reform) and Pakistan (weaker exchange rate).

Slowing global growth and elevated trade and geopolitical tensions are posing economic challenges for countries of the MENAP region, says the report. In addition, low and volatile oil prices are negatively affecting some countries, while others grapple with rising public debt. Elevated public debt in oil importers limits capacity to address critical infrastructure and social needs, restrains growth and leaves economies vulnerable to external shocks.

IMF projects Pakistan’s GDP growth to 2.9pc during ongoing fiscal year down from 5.2pc of previous year

The report stated that in countries where the level of tax collection is low (Afghanistan, Pakistan, Sudan), there is also considerable room to improve revenue mobilisation, including by eliminating distortionary exemptions; taxing the richer segments of the population, such as by introducing property and wealth taxes; broadening the tax base and reducing informality. Growth projections have been steadily revised down in several countries (Jordan, Lebanon, Morocco, Pakistan, Sudan) amid a weaker external environment. Regional growth for 2019 was projected at 4.0 percent in the October 2018 Regional Economic Outlook, compared with current projection of 3.6 percent.

In several countries in the MENAP region, social tensions are rising in the context of lower growth and reform fatigue, threatening macroeconomic stability. Such tensions may also derail much-needed reforms, potentially spilling over into conflict and further regional uncertainty. According to the report, impact and timing of major geopolitical developments—including tensions between India and Pakistan, large demonstrations and political uncertainty in Algeria, possible peace in Afghanistan, and sanctions on Iran—are not yet clear. Such uncertainty may increase investors’ perception of risk for the whole region, leading to capital outflows and exchange rate pressure. And in turn, this may feed back into further oil price volatility and regional uncertainty.

Growth in oil importers of the MENAP region is projected to remain relatively modest, constrained by persistent structural rigidities. Elevated public debt in many countries limits the fiscal space needed for critical social and infrastructure spending and leaves economies vulnerable to less favorable financial conditions. The outlook remains clouded by mounting global trade tensions and financial market uncertainty.

Social tensions are rising in many countries as unemployment remains high and socioeconomic conditions worsen. Continued growth friendly fiscal consolidation is needed to rebuild buffers and enhance resilience, along with intensified structural and governance reforms to improve competitiveness, boost private investment, and generate jobs. Increased regional integration will also help support medium-term growth.

Risks also remain to the downside, with global trade tensions casting a cloud over the growth outlook in key trading partners and raising the prospect of investors’ increased risk aversion toward emerging markets. Regional uncertainty (Afghanistan, Jordan, Lebanon, Somalia, Syria), security concerns, weaker-than-anticipated public investment, and large external imbalances (Lebanon, Pakistan, Sudan) are expected to weigh on the medium-term growth outlook.

While remittances help to provide a buffer for current account deficits in many countries (Morocco, Pakistan, Somalia), there is a downside risk of a slowdown in remittance-originating countries, most of which are in Europe or the Gulf Cooperation Council. Targeted social transfers should replace subsidies, which benefit some segments of the population disproportionately (for example, fuel subsidies in Sudan and Tunisia and electricity subsidies in Jordan), while restructuring state-owned enterprises (Egypt, Pakistan) would also make for more efficient spending.