By Staff Reporter
KARACHI: Pakistan’s economy faces significant risks, with “formidable” vulnerabilities and structural challenges threatening growth, the International Monetary Fund (IMF) warned.
The IMF’s concerns come despite approval of a $7 billion, 37-month bailout package on Wednesday aimed at stabilizing Pakistan’s finances. The IMF’s Executive Board greenlit the package, allowing for an immediate disbursement of $1 billion, following Pakistan’s implementation of consistent policies under the 2023-24 Stand-by Arrangement (SBA).
“A difficult business environment, weak governance, and an outsized role of the state hinder investment, which remains very low compared to peers, while the tax base remains too narrow to ensure tax fairness, fiscal sustainability and meet Pakistan’s large social and development spending needs,” the IMF said in a statement.
The Washington-based lender praised Pakistan’s efforts, stating that “growth has rebounded to 2.4 percent in FY24, supported by activity in agriculture, while inflation has receded significantly, falling to single digits, amid appropriately tight fiscal and monetary policies.”
“A contained current account and calm foreign exchange market conditions have allowed the rebuilding of reserve buffers,” it added.
“Reflecting disinflation and steadier domestic and external conditions, the State Bank of Pakistan has been able to cut the policy rate by a total of 450 bps since June also supported by an appropriately tight FY25 budget.”
However, the IMF cautioned that “Pakistan’s vulnerabilities and structural challenges remain formidable.
“In particular, spending on health and education has been insufficient to tackle persistent poverty, and inadequate infrastructure investment has limited economic potential and left Pakistan vulnerable to the impact of climate change,” IMF said. “Without a concerted adjustment and reform effort, Pakistan risks falling further behind its peers.”
The IMF-backed program prioritizes rebuilding policy-making credibility and entrenching macroeconomic sustainability through consistent implementation of sound macro policies and a broadening of the tax base.
Other key priorities under the new EFF-supported program include advancing reforms to strengthen competition and raise productivity and competitiveness, reforming state-owned enterprises (SOEs) and improving public service provision and energy sector viability, and building climate resilience.
Copyright © 2021 Independent Pakistan | All rights reserved
