Despite making some progress on the economic front, Pakistan still continues to face difficult macroeconomic challenges as growth remains insufficient, underlying inflation stands high and the external position is weakening, according to the executive board of directors of the International Monetary Fund (IMF) on Thursday.
The IMF directors made the observation in their First Post-Program Monitoring Discussions and the Ex-Post Evaluation of Exceptional Access under the 2008 Standby Arrangement with Pakistan. They said the situation was compounded by an uncertain global environment and a difficult domestic situation, as well as adverse effects of natural disasters. The directors said that strong policy measures and deeper reforms were critical to addressing vulnerabilities, boosting sustainable growth, and reducing poverty. They said that in order to restore the macroeconomic and external stability, the large fiscal deficit should be reduced. To achieve the government’s 2012/13 deficit target, they called for short-term revenue and expenditure efforts, including broadening key taxes and reducing subsidies, while protecting the most vulnerable.
To strengthen the fiscal position in the long run and create space for capital and poverty-related spending, the IMF called for comprehensive revenue and expenditure reforms. Fiscal consolidation should focus on changes in tax policy and improvements in compliance, they said. Some directors urged reconsideration of the tax amnesty schedule currently being contemplated. Recognising the political difficulties in implementing a full VAT, the IMF advised the authorities to consider credible alternative revenue measures, including a modified General Sales Tax (GST) and strengthening the income tax.
