The IMF on Thursday called on Pakistan’s new government to act fast to stabilize its teetering economy, warning that growth will likely slow and inflation rise, but made no mention of a new bailout deal.
Pakistani Prime Minister Imran Khan’s new administration had vowed to decide by the end of last month if it would seek an IMF bailout to shore up the economy as it faces a balance-of-payments crisis and dwindling reserves.
However, it has yet to announce a deal as its seeks other arenas of financing, and launched a highly publicized austerity drive that has included auctioning off government-owned luxury automobiles and buffaloes.
FINANCIAL NEEDS
Pakistan is in need of significant external financing in the near term, the IMF said in a statement, recommending raising gas and power tariffs, while also pushing for exchange rate “flexibility” and monetary policy tightening.
“These steps would help reduce current account pressures and improve debt sustainability,” the fund said.
However, it warned that tough days might lie ahead, as higher oil prices and tightening financial conditions for emerging markets would likely add to Pakistan’s economic woes.
“In this environment, economic growth will likely slow significantly, and inflation will rise,” the IMF said.
Pakistan has gone to the IMF repeatedly since the late 1980s. The last time was in 2013, when Islamabad accepted a US$6.6 billion loan to tackle a similar crisis.
CURRENT ACCOUNT
For months, analysts have warned that Khan’s new government must act quickly to stem a new current-account crisis, which could undermine the nation’s currency and its ability to repay billions in debts or purchase imports.
The US, one of the IMF’s biggest donors, has raised fears that Pakistan could use any bailout money to repay mounting loans from China, sparking criticism from Islamabad.
Pakistan’s budget deficit has climbed steadily over the past five years, while foreign currency reserves have declined. The rupee has been repeatedly devalued in the past year, fueling inflation.
MEETING PROMISES
Khan, who took office in August, has vowed to improve trade with India, increase the ease of doing business and boost tax collection, but is yet to roll out a comprehensive plan aimed at tackling the country’s economic fortunes.
The state of Pakistan’s finances could also undermine one of Khan’s most popular promises to construct an “Islamic welfare state” based on increased spending on education and health.
The IMF’s warnings came days after the Asian Development Bank said that Pakistan’s economy could shrink by 1 percent in the current fiscal year.
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