IMF, Pakistan agree on short, medium-term reforms

Pakistani authorities and International Monetary Fund (IMF) have agreed to carry out short-term and medium-term economic reforms in the country. These reforms are being touted as means to address fiscal “vulnerabilities” and lift economic growth. This would in turn reduce poverty and assure continued macroeconomic and financial sector stability during FY12. FY12 has been flaunted as a “challenging” year by IMF.

Constructive discussions

Agreement was reached by the two sides during November 9-19 meeting of IMF staff mission with Pakistani authorities. Staff mission was led by Adnan Mazarei, and the meetings were held in Dubai and Islamabad to conduct 2011 Article IV consultation. “The Pakistani authorities and an IMF staff team held constructive discussions on Pakistan’s recent economic performance and the challenges ahead, in light of uncertainties in the global economic environment,” IMF mission stated at the conclusion of meetings. It said Pakistani authorities expressed their resolve to strengthen macroeconomic policies and continue to pursue reforms to enhance the country’s medium-term growth prospects. “The outlook for FY2011-12 is challenging,” mission stated.

Declining inflation

It said real GDP growth was projected at about 3.5 per cent and inflation was being predicted to decline, but external current account balance was projected to return to a deficit. Also, global risk aversion and security concerns may limit capital inflows the mission added. “With this background, discussions are centered on short-term steps to address vulnerabilities. Specifically, the Pakistani authorities and the mission agreed that containing the budget deficit in FY12 a cautious monetary policy and a responsive exchange rate would reduce vulnerabilities and protect Pakistan’s international reserves,” IMF mission said. Pakistani authorities, it said, also discussed a set of medium-term reforms with IMF mission, that would lift economic growth, reduce poverty and raise living standards and employment. It would assure continued macroeconomic and financial sector stability, mission added.

Structural reforms

Mission said these reforms include structural reforms to remove constraints to growth, especially in energy sector, and strengthen public finances. These finances include tax reform, improving quality of expenditure by raising share of spending in priority areas such as health, education, and infrastructure it added. It would also manage fiscal decentralisation, and improving debt management, mission believed.

Financial sector stability

Additionally, reforms to improve effectiveness of financial sector intermediation, broaden access to finance, and reinforce financial sector stability should also continue. “The mission benefitted from a seminar ‘Revival of Economic Growth in Pakistan’ that was organised jointly with the ministry of finance. This seminar provided an opportunity for stakeholders in Pakistan from academia, civil society, private sector, and development partners to discuss components of a pro-growth reform strategy,” it said. Reiterating its commitment to continued close engagement with Pakistan, IMF team said it would prepare a report for IMF executive board on Article IV consultation that was scheduled for consideration in late January 2012. Under Article IV of IMF’s Articles of Agreement, IMF holds bilateral discussions with members – usually every year. A staff team visits the country, collects economic and financial information, and discusses the country’s economic developments and policies. Upon its return to headquarters, staff prepares a report, which forms basis for discussion by executive board. At the end of discussion, managing director, as chairman of the board, summarises views of executive directors, and this summary is transmitted to the country’s authorities.
IMF sees ‘challenging’ outlook for Pakistan
WASHINGTON: The 2011/12 outlook for Pakistan’s economy is “challenging,” with global risk aversion and security concerns likely to limit capital inflows, the International Monetary Fund said. IMF said in a statement after talks with Pakistani officials that authorities were committed to reforms to boost medium-term economic prospects. “Pakistani authorities and the mission agreed that containing the budget deficit in 2011/12, a cautious monetary policy, and a responsive exchange rate would reduce vulnerabilities, contain inflation and protect Pakistan’s international reserves,” IMF said in a statement. Reuters