• Saturday, September 22, 2018

Risks to Pakistan's economic outlook have increased: IMF

Discussion in 'Pakistan Economy' started by Laozi, Mar 7, 2018.

  1. Laozi

    Laozi SENIOR MEMBER

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    Risks to Pakistan's economic outlook have increased: IMF

    [​IMG]
    Says country’s ‘medium-term’ debt repayment capacity has also weakened. PHOTO: REUTERS

    ISLAMABAD: In an ominous warning, the International Monetary Fund (IMF) has said that risks pertaining to Pakistan’s economic and financial outlook have increased and its medium-term debt repayment capacity has weakened, urging Islamabad to take immediate corrective measures.

    The IMF released the statement almost one and a half day after the conclusion of its Executive Board meeting that held the ‘first post-program monitoring discussions’ with Pakistan. The discussions were earlier also held in Islamabad in December to gauge Pakistan’s ability to repay the IMF loan.

    The IMF’s projections over the current account and budget deficits are gloomy to say the least, and cast a huge question mark on the narrative presented by former finance minister Ishaq Dar at the time of unveiling the government’s fifth budget in June last year. The IMF has projected that the country’s current account deficit will stand at 4.8% of total national income, or $16.6 billion, which is a staggering 83% higher than the government’s official estimates.

    Sheer size of CPEC portfolio appals IMF

    The IMF has also predicted that Pakistan’s official gross foreign currency reserves could slip to $12.1 billion – barely enough to finance 10 weeks of imports.

    The directors of the IMF also asked Pakistan to improve its anti-money laundering and counter-terrorism financing regimes. They also want the country’s managers to devalue the currency to minimise damages to the external sector, and levy more taxes to control the growing budget deficit.

    With “rising external and fiscal financing needs and declining reserves, risks to Pakistan’s medium-term capacity to repay the Fund have increased since completion of the Extended Fund Facility (EFF) arrangement in September 2016”, noted the IMF in its handout released Wednesday morning.

    It said Pakistan’s near-term outlook for economic growth is broadly favourable and real GDP growth is expected to grow by 5.6% in fiscal year 2017-18, supported by improved power supply, investment related to the China-Pakistan Economic Corridor (CPEC), strong consumption growth, and ongoing recovery in agriculture. Inflation has remained contained.

    However, it added, continued erosion of macroeconomic resilience could put this outlook at risk.

    The budget deficit is expected to widen to 5.5% of GDP this year, which is equal to almost Rs2 trillion and will be the highest in Pakistan’s history in absolute terms. The official target is 4.1% of the GDP or Rs1.48 trillion.

    The IMF said that the deficit may even go higher due to upcoming general elections.

    The Washington-based lender also said that surging imports have led to a widening current account deficit and a significant decline in international reserves despite higher external financing. FY 2017/18’s current account deficit could reach 4.8% of GDP, with gross international reserves further declining in the context of limited exchange rate flexibility. This is equal to $16.6 billion – and far higher than $12.1 billion deficit that Pakistan has booked last fiscal year.

    Growth in Pakistan expected to pick up in 2018, 2019: IMF

    The IMF directors “noted with concern the weakening of the macroeconomic situation, including a widening of external and fiscal imbalances, a decline in foreign exchange reserves, and increased risks to Pakistan’s economic and financial outlook and its medium term debt sustainability”.

    Pakistan’s external debt and liabilities have already increased to $89 billion by the end of December and the figure is expected to significantly jump by the time the current fiscal year ends due to mounting external repayment and trade related obligations. The IMF sees no change in the country’s debt burden and said that the overall debt-to-GDP ratio would remain at 69.7% – even higher than the limit set by parliament for the government.

    The directors welcomed the authorities’ move to allow some exchange rate adjustment last December, but “stressed the importance of greater exchange rate flexibility on a more permanent basis to preserve external buffers and improve competitiveness”.

    The IMF also encouraged Pakistan to phase out administrative restrictions that it has placed on imports to contain its bill.

    It noted that external sector pressures are in part linked to the fiscal deterioration during last year and an accommodative monetary policy stance, as well as the high imports related to CPEC projects.

    They called on the authorities to strengthen fiscal discipline through additional revenue measures and efforts to contain current expenditure while protecting pro poor spending. Complementing the recent increase in the policy interest rate with further monetary tightening would be important to address inflationary risks and help reverse external imbalances.

    Rupee’s fall set to change economic landscape

    The IMF directors also emphasised the need for prudent debt management and caution in phasing in new external liabilities, and the urgency of tackling rising fiscal risks stemming from continued losses in public sector enterprises.

    “There is absence of political consensus in Pakistan, which remains an obstacle to deep structural reforms,” said Tokhir Mirzoev, the outgoing resident representative of the IMF. He said that politics must be separated from the country’s economic agenda.

    “The economic future of Pakistan is the collective responsibility of all political parties, whether they are in the government or in the opposition,” said Mirzoev, who ends his three-year term in Pakistan this week.

    https://tribune.com.pk/story/1653241/2-risks-pakistans-economic-outlooks-increased-imf/
     
  2. MUSTAKSHAF

    MUSTAKSHAF SENIOR MEMBER

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    Economies aren't built on debt!
    We have hard time understanding that.
     
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  3. AyanRay

    AyanRay FULL MEMBER

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    Yes economies are built on debts. You can sugarcoat the word as investments, but this is how economy grows.
     
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  4. takeitwithyou

    takeitwithyou BANNED

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    @ziaulislam just in time when you and I were discussing the hits to the 'economy'

    What about the second half of that- they are also built on timely repayment, no?
     
    Last edited: Mar 7, 2018
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  5. MUSTAKSHAF

    MUSTAKSHAF SENIOR MEMBER

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    You can't sugercoat,debat and investment are opposite to each other.
     
  6. Baghial

    Baghial FULL MEMBER

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    Very good news... so now is time to sell some more national assets
     
  7. SorryNotSorry

    SorryNotSorry FULL MEMBER

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    Whats the point of posting this? You will just get spammed with CPEC this, CPEC that.
     
  8. ziaulislam

    ziaulislam SENIOR MEMBER

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    can you highlight the negatives in this article.... i see none(apart from self made headline)

    even on debt it says "The IMF sees no change in the country’s debt burden and said that the overall debt-to-GDP ratio would remain at 69.7% – even higher than the limit set by parliament for the government.:"

    overall if i change the topics to " excellent growth puts Pakistan on fastest growing economies with 6+ project growth" and i can paste the whole content below

    only concerning statement analysis
    noted with concern the weakening of the macroeconomic situation, including a widening of external and fiscal imbalances, a decline in foreign exchange reserves, and increased risks to Pakistan’s economic and financial outlook and its medium term debt sustainability”.
    1. of course there is concern on fiscal deficit going to 5+ on election year only, otherwise it has been well controlled in around 4 causing consistent drop in tax to gdp ratio over last 2 years
    2. short term risk on current account crisis(seems to be reversing on wake of 12% increase in export last year with trend and slowing down of machinery import relating to power sector, decrease in oil imports with LNG and coal plants (oil+ machinery was 50% of our imports last year)
    3. and debt(ideal debt is around 50% vs 67%)

    question is are things looking better than 5 years ago?...hell yes..

    are things getting better?..hell yes
    is CPEC going to be debt burden?..no
    will pakistan grow as fast as china..probably not without reforms
    will it grow around rate of india(6-8%) likely if no major political or terrorist upheaval happen

    this conclusion is based upon the article it self


    biggest risk to economy is external dependence on remittance and narrow base/market for exports..if something happen in gulf that will destroy/crash our economy...

    other risk factors are possible wide spread anarchy after election(in eyes of foreign investor)

    i doubt we will need IMF though govt might opt for the cheaper option of IMF, especially if WB, AB link its loans to that, the reason her being poor performance on the grounds of reforms, especially in power sector..

    CPEC will only be issue if non critical projects are selected,
    so far non of Pakistan projects are non critical
    you cant compare motor way that serves 200 million people with an isolated port in sriLankan..doesn't make sense

    CPEC related loans are very limited any way, it will not change the GDP to loan ratio, that will continue to improve after hitting all time high in 2013
     
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  9. jetray

    jetray SENIOR MEMBER

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    developing countries need loans to churn out more economic activity.
    Problem is not with debt but whether the projects financed using debts are giving returns or not. If they are giving back good value then it should not be problem and debt over a period of time becomes very manageable as economy will grow bigger and debt smaller.
     
  10. fiza200

    fiza200 FULL MEMBER

    New Recruit

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    Exports of Pakistan is decreasing but GDP growth is increasing.
     
  11. foxbat

    foxbat SENIOR MEMBER

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  12. ziaulislam

    ziaulislam SENIOR MEMBER

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  13. foxbat

    foxbat SENIOR MEMBER

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  14. patman

    patman BANNED

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    Anyone investing in pk stocks better sell before they are put them on the gray list or black list , once prices have dropped to dirt then buy , they will inevitability take a another lone to pick up growth & control the inflation
     
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  15. ziaulislam

    ziaulislam SENIOR MEMBER

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