Economic and financial stability at risk without urgent policy action
Pakistan needs $38 billion to meet its future financing needs, a report by the IMF said on Wednesday.
The IMF stated that Pakistan’s economy is at a “critical juncture” and that economic and financial stability could be at risk if urgent policy action is not taken.
IMF’s fund supported programme is expected to gather monetary support from other countries. The authorities’ comprehensive economic reform programme, supported by the Extended Fund Facility (EFF), aims to stabilize the economy and lay the foundation for healthy and balanced growth.
Pakistan’s economy needs to reduce public debt and build resilience, starting with the adoption of an ambitious 2019-20 budget, the report said. The adjustment will be supported by comprehensive efforts to drastically increase revenue mobilization by four to 5% of GDP at the federal and provincial levels over the three-year period.
The IMF suggested that social spending should be expanded by strengthening and broadening safety nets to support the most vulnerable. A flexible, market-determined exchange rate is required to restore competitiveness, rebuild official reserves, and provide a buffer against external shocks to Pakistan’s economy, it said, adding that this will be supported by monetary policy to shore up confidence and contain inflation, conducted by an independent central bank.
There should be no political interference in the setting of gas and power tariffs to eliminate quasi-fiscal losses and encourage investment in the energy sector, the IMF said. This would gradually bring the sector to cost recovery. The Pakistan government has already increased both tariffs and is eyeing further increases in December.
The Fund also discussed the importance of strengthening institutions, increasing governance and transparency, and promoting an investment-friendly environment.
The IMF approved on Wednesday a $6 billion bailout package for Pakistan. It is a three-year loan programme. The IMF board released $1 billion to Pakistan immediately and said in a statement that the programme aims to “support the authorities’ economic reform program” and to help “reduce economic vulnerabilities and generate sustainable and balanced growth.”
The Fund will review Pakistan’s performance quarterly over 39 months, phasing the release of the additional aid over time. This is Pakistan’s 13th IMF programme.