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IMF warns Pakistan over fiscal deficit, external sector

The International Monetary Fund (IMF) has stated that Pakistan should concentrate on two mainstay of economy namely tightening of fiscal deficit and external side. IMF Mission Chief at the conclusion of post-program monitoring of $6.64 billion External Fund Facility (EFF) stated pre-election phase could bring some difficulties. It is hoped that the government will take necessary steps to ensure stability throughout this period.

The IMF stated that in that context State Bank of Pakistan (SBP) allowed adjustment of exchange rate in the past few days. The IMF has nothing to do with this and this is an independent policy decision. Whether Pakistan will be able to manage external side without IMF after June 2018, IMF said that it is difficult period for Pakistan and success will depend on strength of the polices that are being put in place including those on exchange rate side and the efforts to contain the fiscal deficit.

Pakistan needs to focus on revenue collection and broaden tax net as tax collection has been very low from many years. During the tenure of present government tax to GDP ratio has improved from 10 percent to 12 percent. There is potential of 22 percent growth in the revenue collection. Supported by improved security conditions, energy supply, infrastructure investment and agriculture IMF foresees a 5.6 percent growth for the current fiscal year

The last IMF program was successfully completed with progress in stabilizing the economy both on the fiscal side and building external safeguards. But structural reforms required much longer. Fiscal deficit is well in control and also to ensure that the foreign exchange reserves losses are now addressed.

Pakistan has not requested for another IMF program. IMF says that it is now the right time to arrest the external and fiscal imbalances. Pakistan’s economy is on a strong base and that it would not require another IMF program. IMF, however, said its mission, staff will prepare a report for the IMF”s Executive Board for a discussion and a decision.

Pakistan plans launching another international bond in about 45 days to manage external vulnerabilities and said it would do everything possible not to go for another IMF program in any circumstances.


The IMF welcomed recent depreciation of the rupee, noted favourable economic growth momentum supported by improved energy and security situation and infrastructure investments. IMF said that continued exchange rate flexibility will be important to facilitate external adjustment to support exports and economic growth.

The government raised $2.5 billion through two international bonds namely Sukuk and Eurobond. In extreme circumstances, the secretary finance said the government could also arrange commercial financing but that would always be the last resort. Notwithstanding accelerating growth and subdued inflation, the mission noted that Pakistan faced important near-term economic challenges like surging imports that cut down on reserves despite higher external financing. The increase in the fiscal deficit last year has added to these trends.

It expressed concern over accumulating power sector arrears and wanted the government to act decisively to address for prevent a further build up of vulnerabilities and preserve Pakistan’s hard-won macroeconomic stability. The IMF Mission noted that a strong reform effort was needed to maintain external stability, ensure debt sustainability, and support higher and more inclusive growth in the medium term. The secretary finance also saw some improvement on external side and stated that there will be decline in machinery imports for energy projects under the China Pakistan Economic Corridor (CPEC), which are in completion stage, and the notification of Regularity Duty (RD) issued on October 18, 2017 has started showing results, in addition to growth in remittance and exports. He said that remittances are expected in current fiscal year at around $20 billion and growth in remittance during the first five months of the current fiscal year was 1.3 percent. He said the current devaluation of exchange rate will also arrest the imports’ trend. He said that financing needs are under control but in the coming months it will depend upon the growth in exports, contraction in imports and remittance inflows as well as FDI and official inflows. He said that $2.5 billion Sukuk and Eurobond have already been issued and if necessitated, the country will again go to the capital market. The commercial borrowing will be the last option to avoid IMF program, he added.

The secretary finance acknowledged that there will be slippage in the fiscal side as opposed to the budget target of 4.1 percent, but he was optimistic that it will not reach the last fiscal year’s level of 5.8 percent. “We have to control the fiscal deficit in a way that it does not impact the growth,” he said, adding the revenue collection was over 19 percent in the current fiscal year and the government’s major focus is on performance of Federal Board of Revenue (FBR). The secretary finance stated that long-term growth prospects of the country are very positive. The secretary finance stated that inflation will remain around 5 percent during the current fiscal year.

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