IMF report praises Pakistan government for strengthening macroeconomic resilience

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WASHINGTON, July 13 (APP): The International Monetary Fund Thursday
released the country report on Pakistan, praising the government for strengthening macroeconomic resilience, saying the country’s outlook for economic growth is favorable with real GDP estimated at 5.3 percent in FY 2016/17 and strengthening to 6 percent over the medium-term.
“Macroeconomic resilience was strengthened during the three-year
Extended Fund Facility (EFF)-supported programme completed in September 2016: growth increased, the fiscal deficit was reduced, and foreign currency reserves recovered,” the report said based on Article IV consultations.
The Executive Board of the International Monetary Fund (IMF) concluded
the Article IV consultation 1 with Pakistan on June 14. Meetings with Pakistani officials were held in March and April in Dubai.
According to the report, structural reforms were set in motion;
long-standing fiscal and energy sector constraints started to be tackled, and social safety nets were strengthened.
However, the report said that while the successful implementation of
business climate and financial inclusion reforms has continued, some renewed accumulation of arrears in the power sector has been observed.
The Executive Board Assessment-2 Directors commended the Pakistani
authorities for strengthening macroeconomic resilience during their 2013-1016 Fund supported programme.
While agreeing that the growth outlook remains favorable, the directors
called on the authorities to safeguard the macroeconomic gains of recent years through continued implementation of sound policies, and to continue with structural reforms to achieve higher and more inclusive growth.
According to the report, the economic recovery has continued in FY
2016/17 and inflation has remained contained.
Agricultural production, notably cotton, has been recovering following
last year’s decline, construction activity and services have remained strong, and growth in largescale manufacturing has been improving following weaker-than-expected growth earlier in the year.
During the first three quarters of FY 2016/17, the current account
deficit widened to 2 percent of GDP, reflecting increasing imports due to investments related to CPEC, recovering oil prices, and sluggish remittances, driven by slower growth in the Gulf Cooperation Council (GCC) countries.
Exports have dropped by one percent year-on-year and the exchange rate
continued to remain stable against the U.S. dollar, supported by the SBP’s foreign exchange interventions, and further appreciated in real effective terms 6 percent during this fiscal year.
“The banking system has remained sound. Bank private credit growth has
continued to gradually increase, reaching 14 percent (y-o-y) at end-March 2017. Asset quality has improved, with the gross and net nonperforming loans (NPLs) ratios decreasing to eight-year lows of 10.1 percent and 1.6 percent, respectively (December 2016).”
Progress has been made towards the operationalization of the recently
adopted Deposit Protection Corporation, also expected by end-June 2017. The stock market has performed strongly, and MSCI has reclassified Pakistan from frontier to emerging market, effective June 2017.
The report noted that the progress has been made in raising the
revenue-to-GDP ratio and strengthening tax compliance, with significant room for additional improvement going forward.
“Targeted cash transfers to the poor under BISP continued to increase,
and efforts to improve the business climate and financial access have begun to bear fruit. Efforts to establish deposit insurance and to address undercapitalized banks and high NPLs have progressed,” according to the report.
“The authorities made progress in strengthening the SBP’s autonomy
although further steps will be needed. There has also been significant progress in energy sector reforms, though the recent resumption of circular debt accumulation points to the need for continued reform efforts,” it added.
The report noted that key external risks include lower trading partner
growth, tighter international financial conditions, a faster rise in global oil prices and, over the medium term, failure to generate sufficient exports to meet rising external obligations from foreign-financed investments.
“Domestically, risks include deterioration in security conditions and
potential pressures on policy implementation ahead of the mid-2018 elections,” the report said.