Pakistan is expected to achieve an economic growth in the range of 3-3½ in the current fiscal year but the GDP growth needs to step up to meet demands of the growing labor force, the International Monetary Fund said Thursday.
“Pakistan faces a challenging economic outlook. GDP growth in 2012/13 is projected to be in the 3-3½ percent range, which needs to accelerate in order to absorb the growing labor force,” the Fund said.
The statement follows Post-Program Monitoring (PPM) discussions between the Fund team and the Pakistani authorities in Dubai and Islamabad during September 26- October 3, 2012.
The fund noted that inflation has fallen recently but is expected to be back in double digits by the middle of next year if corrective measures are not taken to reverse monetary financing of the fiscal deficit. Pakistan’s external position is weakening.
While the current account deficit is not large by international standards, financial flows have weakened and central bank reserves have fallen.
“Decisive and far-sighted action is needed to address this challenging outlook. Discussions on economic policy focused on diligent management of the budget deficit, reducing inflation, and structural reforms.
The government and the IMF team agree on the need to contain the budget deficit to help lower inflation, reduce crowding out of private sector credit, and ensure debt sustainability.
“In our view, this requires significant corrective measures; the fiscal deficit is otherwise likely to exceed the budget target by a significant margin. To rein in the fiscal deficit, both revenue and expenditure measures will be required.”
On the revenue side, the Fund said while there has been some improvement in collections, tax revenue should be raised further through sustained policy measures and strengthened administration both at the federal and provincial level, including a significant step-up in the Federal Board of Revenue’s enforcement activities.
On the expenditure side, untargeted subsidies should be reduced, while fully protecting the most vulnerable members of society through targeted assistance schemes.
“The mission welcomed the authorities’ intention to prudently manage public spending, despite pressures associated with the electoral cycle, and noted that it is crucial that expenditure restraint also apply to provincial governments, which now have increased spending responsibilities.
The authorities also signaled their continued commitment to trying to meet their fiscal target.”
