News Analysis |
IMF has downgraded Pakistan’s economic growth from an estimated 5.6 % in FY2018 to 4.7 % in FY2019, according to International Monetary Fund’s regional economic outlook update for the Middle East, North Africa, Afghanistan and Pakistan (MENAP).
Pakistan’s finance minister -Mifta Ismail had boasted upon the performance of the economy. Pakistan Economic Survey 2017-18 mentioned the foreign institutions including IMF for stating that Pakistan’s economy is showing strong signs of rising growth and price stability.
The near-term outlook for economic growth is broadly favorable supported by the improved power supply, investment relating to the China Pakistan Economic Corridor (CPEC), strong consumption growth and the ongoing recovery in agriculture.In the budget speech for giving credence to his words and reports of foreign lenders, Mifta put forward the real GDP growth rate of 6.2% for 2018-19.
After twice depreciation of the currency, Inflation perked up to 3.7% in April from 3.2% in March. Inflation is expected to rise further after regressive measures taken to bridge the budget deficit.
Mifta claimed that last year, PML-N Government achieved GDP growth of 5.4% which was the highest growth rate in last 10 years. In contrast, the average GDP growth during the period 2008-12 was a paltry 2.8% per annum. For this year our growth is projected 5.8% which is the highest in last 13 years. But IMF has voiced concerns over Pakistan’s outlook and said that “an increase in macroeconomic vulnerabilities and domestic policy slippages have weakened Pakistan’s economic outlook, with growth now projected to 4.7pc in FY19”.
IMF had issued a warning that Pakistan’s economy was going into hot waters in the medium term. IMF in its First Post Program Monitoring discussions with Pakistan concluded that “against the background of rising external and fiscal financing needs and declining reserves, risks to Pakistan’s medium-term capacity to repay the Fund have increased since completion of the Extended Fund Facility (EFF) arrangement in September 2016”.
On contrary to these claims by IMF, an economic survey of Pakistan states that encouragingly, cost and most of the risk indicators of public debt portfolio improved over last four years. The average cost of gross public debt reduced by over 100 basis points owing to smooth execution of the Medium Term Debt Management Strategy.
It is not possible to say that IMF was right when it favored Pakistan’s near-term economic outlook, but, it is wrong when, it questioned Pakistan’s medium-term position citing concerns over twin deficit, growing foreign liabilities and failure to implement policies to considerably improve the tax collection.
Pakistan Economic Survey 2017-18 mentioned the foreign institutions including IMF for stating that Pakistan’s economy is showing strong signs of rising growth and price stability.
In general, the Medium-term in financial strategy means financial goals for any time between roughly six months and one year. It effectively means Pakistan is apparently destined to face financial needs in 6-months’ time. Because it has adequate reserves and borrowing ability from lenders for next few months.Despite some of the bold moves by Mifta, Pakistan’s fiscal space is in squeeze at the moment.
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After twice depreciation of the currency, Inflation perked up to 3.7% in April from 3.2% in March. Inflation is expected to rise further after regressive measures taken to bridge the budget deficit. It will increase the cost of doing business. But, exports are on the rise, but can they improve enough to overcome the impact on debt servicing due to depreciation? Unless Pakistan does not improve its exports and build up the industry and formulates adequate industrial policy, Pakistan will find it difficult to solve its macroeconomic instability.