Rising fiscal deficits, surging imports and other macroeconomic risks threaten Pakistan's otherwise robust growth outlook, according to the International Monetary Fund.
In a March 6 statement, the IMF said it expects the country's fiscal deficit to reach 5.5% of GDP in 2018, and that it is likely to increase ahead of the upcoming general elections.
It also cited rising imports and a growing current account deficit along with a decline in international reserves — which are expected to fall by 25.04% in the current fiscal year. The IMF noted that the current account deficit for the year could climb to 4.8% of GDP.
Pakistan's real GDP is expected to grow by 5.6% in 2018, buoyed by an enhanced power supply, strong growth in consumption, an ongoing revival in agriculture and investments related to the China-Pakistan Economic Corridor. The IMF also noted that inflation remains under control.
The fund encouraged Pakistan's move to permit exchange rate adjustment in December 2017, and encouraged the country to allow further flexibility to enhance competition and preserve external buffers.
The IMF noted that an accommodative monetary policy, fiscal slippage during fiscal year 2017 and increased imports from to the CPEC projects created some external pressures. It encouraged Pakistan to focus on additional revenue measures and take steps to control current expenditures in an attempt to tighten fiscal discipline.
In addition, the statement stressed the need to exercise caution in taking on new external liabilities, managing debt and dealing with fiscal risks as a result of recurring losses in public sector organizations.
