IMF warns Pakistan over slow growth, high deficit
07 February, 2012
WASHINGTON: The International Monetary Fund (IMF) warned Pakistan on Monday over its widening fiscal deficit and slow growth, saying the economy remains deeply at risk to both internal and external shocks. In their comment on the report, the IMF executive directors urged the government to boost revenues and tighten its "too accommodative" monetary policy. The economy is "highly vulnerable with few buffers to absorb shocks", the fund said in an annual report. It noted that political resistance has prevented a needed effort by the government to increase revenues to cover its budget shortfall, with the result that the deficit will expand to about seven percent of gross domestic product this year from 6.6 percent last year. The country's foreign balance is weakening, with exports expected to fall in US dollar value by 1.8 percent, partly due to falling cotton prices. Meanwhile, the central bank's intervention to support the rupee had led to a $2 billion fall in reserves in the past six months, the fund said. The IMF said Pakistan's economy would speed up to a 3.4 percent growth pace in fiscal year 2011-2012, which runs to June 30, compared to 2.4 percent last year. But that was less than half the pace needed to absorb two million new workers in the market every year, it said, while unemployment and underemployment remain higher than the official 6.6 percent rate. At the same time, loose money policies by the State Bank of Pakistan (SBP), meant to help the economy grow, continue to feed double-digit inflation. "Central bank financing of the budget needs to be curtailed, and greater operational independence of the central bank needs to be secured," the directors siad. The IMF warned of "considerable downside risks to this already difficult baseline", citing both the challenging global economic environment and, inside Pakistan, coming Senate and parliamentary elections. "Unless there are measures taken to rein in the fiscal deficit, and the monetary policy tightening that is probably needed right now, pressures on the rupee could continue," IMF mission chief to Pakistan Adnan Mazarei told a conference call. He said Pakistan had not requested a new IMF loan program. The previous one fizzled out last year after the government missed economic and reform targets. End.
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