April 06 , 2017
Pak economy improving, challenges persist in energy, finance: IMF
Says Pakistan may not achieve economic growth targets this year; Ishaq Dar says Pakistan strengthening macroeconomic stability, generating higher growth
ISLAMABAD: The International Monetary Fund (IMF) says the economy of Pakistan has improved, however, it is facing challenges in the energy sector and finance.
It said Pakistan may not be able to achieve its economic growth targets set for the current fiscal year. The statement came after the IMF representatives concluded their consultations with Finance Minister Ishaq Dar and officials of the Finance Ministry in Dubai.
Over the course of discussions, the IMF urged the Finance Ministry to continue the reforms promised under an IMF-backed programme in order to achieve economic stability and growth.It added that the economic growth in the current fiscal year is expected to reach 5 per cent, with the current account deficit expected at 2.9pc. The IMF further stated that the rate of inflation is expected to be at 4.3 percent.
The delegation noted that the country has faced several challenges on the international platform as well as in the fields of energy and finance and observed that investment in the China-Pakistan Economic Corridor (CPEC) had improved the country’s energy supply. However, the delegation advised the Finance Ministry that in addition to increasing its tax revenues, Pakistan would also have to improve its export base to keep on track. – Agencies
Mehtab Haider and Sibte Arif add: Minister for Finance Ishaq Dar has said Pakistan has been continuing its efforts for strengthening of macroeconomic stability and generating higher and inclusive growth in the post programme period of the IMF package.
Addressing a joint press conference along with IMF mission chief Herald Finger in Dubai on Wednesday after the conclusion of Article IV consultation, Ishaq Dar said Pakistan and the IMF had successfully completed the Article IV consultations. These discussions are an annual feature and are conducted under articles of agreement of the Fund. Pakistan had also successfully completed the Extended Fund Facility (EFF) Programme with programme period, we have continued our efforts for strengthening of macroeconomic stability and generating higher and inclusive growth.
The consultations here under Article IV have broadly covered multiple areas of the economy and successful completion of these discussions is indicative of government’s continued commitment to further deepening of structural reforms in the areas of energy, monetary, financial and public sector enterprises, added the minister.
The GDP, he said, continued to maintain its growth momentum above 4 percent for the third year in a row. “In the current fiscal year, we are expecting a growth of above 5 percent, which will be the highest in the last nine years. The overall economic environment is conducive backed by an accommodative monetary policy as policy rate at 5.75 percent is the lowest in last few decades,” he said.
He said that inflation during March 2017 slightly increased to 4.9 percent as compared to 3.9 percent year on year basis. He said during July-March FY-2017 it stood at 4.01 percent as compared to last year's 2.64 percent reflecting higher domestic demand and increase in global commodity prices. He said uptick in credit expansion to private sector has increased to Rs393 billion during July-March 2017.
The minister said there has been a surge in import of machinery of over 42 percent and raw materials pointing to robust industrial activities and build up of future productive capacity of the economy.
The minister said the large scale manufacturing (LSM) continues to grow at 3.5 percent with increase in production of cement, steel, pharmaceuticals, automobiles, paper and board and electronics. “With appropriate interventions for agriculture sector in Finance Bill 2016-17, growth in agriculture is also expected to rebound on account of better production of cotton, sugar, maize and increased prospects for wheat production. Increase in production of commodities will have a spill over effect on services sector,” he added.
He said the budget deficit, which stood at 8.2 percent of GDP in FY-2013, has been brought down to 4.6 percent in FY-2016. During the current FY-2017, it is now projected to reduce to 4.1% of GDP. Earlier, the government had envisaged the deficit target at 3.8 percent of GDP for current fiscal year.
“We are also committed to reduce net public debt which was 60.2% at close of FY-2016 in order to lay the foundations for sustained growth,” he said. In March, 2017, the FBR recorded a growth of 16.1% in revenue collection as it collected Rs345 billion against a collection of Rs297 billion in the corresponding month of the last year. Thus, total collection by FBR in first nine months of the current financial year is Rs2,258 billion which is unprecedented in the FBR history.
The shortfall that FBR experienced in the first eight months was due to the pro-growth incentives offered to various sectors of the economy particularly exports and agriculture; major item of revenue gap amounting to Rs100 billion was due to not passing the full impact of the POL prices to the common man.
The Pakistan has undertaken two important initiatives. First, on 21st March 2107, it signed the revised Avoidance of Double Taxation Agreement with Switzerland. Second, Pakistan has signed on 14th Sept 2016 the OECD's Multilateral Convention on Mutual Administrative Assistance in Tax Matters. These initiatives would help reduce and prevent tax evasion in future.
Despite reducing fiscal deficit over the last three years, he said, allocation for Public Sector Development Programme (PSDP) has more than doubled and during FY-2017, the budget deficit (borrowing) will be only for its development spending, which is a milestone achievement. The current account deficit, he said, increased to $5.5 billion in Jul-Feb FY17. This was largely due to a sizable increase in imports of capital goods, along with delayed receipts of Coalition Support Fund (CSF).
Dar said rise in overall import payments was mainly caused by increased purchases and higher prices of fuel. However, he said, there was significant increase in capital goods imports, which will led the economy to a higher growth path.
“At present, our foreign exchange reserves are hovering around $22 billion, which are expected to reach over $23 billion by end June 2017,” he said.
He said that the government is committed to support the poor and the most vulnerable segments of population through BISP. He said social safety net expenditures have increased by over 300 percent through the four budgets of the current government.
“Significant expansion in allocation to BISP has taken place, which was enhanced from Rs40 billion in FY-2013 to Rs115 billion in FY-2017 leading to increase in coverage from 3.7 million to 5.45 million families. Annual stipend has also been enhanced from Rs12,000 to Rs19,336 during this period and the government has disbursed more than Rs299 billion to the poorest families, as unconditional cash transfers,” said the minister.
Regarding debt management, he said that they will continue to diversify financing from both domestic and external sources, lengthen the maturity profile of domestic debt and improve the balance between domestic and external debt.
To achieve these objectives, he said, the government had already published medium term debt management strategy (MTDS) and are monitoring its implementation through preparation of risk reports on debt management.
“Deepening of the energy sector reforms continues to be a priority agenda of the government. The prime minister of Pakistan leads regular monitoring of the efforts through the Cabinet Committee on Energy. We have added LNG to the system and are in the process of adding new terminals for further imports of LNG,” he said.
Dar said performance of the banking sector remained steady with high credit growth, improved assets quality, robust solvency and reasonable earnings. “Implementation of the doing business reform strategy, 2016 has earned recognition for Pakistan as one of top ten reformers in the world. Substantive reforms continue to be taken in all areas especially in paying taxes, starting a business and registration of property. The government is committed to continue its work to make Pakistan financially and digitally inclusive country,” he said.
The minister said positive macroeconomic achievements to date and continuous implementation and deepening of structural reforms reflect the seriousness of the efforts of this government for creation of room for higher, inclusive and sustainable growth, jobs creation and poverty reduction.