"We do see continued pressure on external side and pressure on international reserves," he added. Finger stated that in that context State Bank of Pakistan (SBP) allowed adjustment of exchange rate in the past few days. He said that the IMF has nothing to do with this and this is an independent policy decision.
To a question whether Pakistan will be able to manage external side without IMF after June 2018, he said that certainly it is difficult period for Pakistan and success will depend on strength of the polices that are being put in place including those on exchange rate side and the efforts to contain the fiscal deficit. That together with external development that is outside the government''s control, will be key to see where Pakistan will be after June 2018.
He said that Pakistan needs to focus on revenue collection and broaden tax net as tax collection has been very low from many years; however, during the tenure of present government tax to GDP ratio has improved from 10 percent to 12 percent. He said that there is significant potential as there is potential of 22 percent growth in the revenue collection, he added.
Political instability that Pakistan has experienced during the past two months has decoupled from economic development and the IMF sees a 5.6 percent growth for the current fiscal year supported by improved security conditions, energy supply, infrastructure investment and agriculture.
He said that the last IMF programme was successfully completed with progress in stabilizing the economy both on the fiscal side and building external buffers. But not all problems were resolved in that programme as structural reforms required much longer.
"The government should focus on two pillars with one to strengthen economic resilience and make it sure that fiscal deficit is well in control and also to ensure that the foreign exchange reserves losses are now addressed," he said.
Pakistan has not requested for an IMF programme, he said adding that it is now the right time to arrest the external and fiscal imbalances to make sure that Pakistan''s economy is on strong footings so that it would not require another IMF programme. He said that based on the preliminary findings of this mission, staff will prepare a report for the IMF''s Executive Board for a discussion and a decision.
A handout given to the media after the briefing stated, "It has been a great pleasure for the mission to visit Pakistan and hold productive discussions in Islamabad for the first time in four years, which is reflective of the improved security situation in the country. The mission met with the Pakistan''s economic team, representatives of the business community, and academics. The mission would like to thank the authorities for their hospitality and constructive dialogue.
"Strengthening the economy''s resilience will be important to maintain Pakistan''s favorable growth momentum and ensure sustainable private investment and job creation in the medium term. While economic growth has been accelerating and inflation remains subdued, Pakistan is facing important near-term economic challenges. Surging imports have led to a decline in international reserves despite higher external financing. The increase in the fiscal deficit last year has added to these trends. Inter company arrears in the power sector continue to accumulate and need to be addressed decisively. While the authorities have taken steps to address these challenges, greater efforts are required to prevent a further build-up of vulnerabilities and preserve Pakistan''s hard-won macroeconomic stability.
"In this context, the move by the SBP to allow adjustment of the exchange rate in recent days is welcome. Continued exchange rate flexibility in the period ahead will be important to facilitate external adjustment in support of exports and economic growth. Alongside, fiscal discipline and an adequately tight monetary policy stance are needed to reverse the widening of external imbalances.
"A strong reform effort is needed to maintain external stability, ensure debt sustainability, and support higher and more inclusive growth in the medium term. This includes pursuing medium-term fiscal consolidation driven by accelerated efforts to broaden the tax base, strengthening the monetary policy framework and autonomy of the SBP, careful phasing in of new external liabilities to contain external stability risks, eliminating the losses of public sector enterprises, improving the business climate, and continued strengthening of the financial sector. In parallel, continuing to strengthen mechanisms for protecting the most vulnerable will be critical to support inclusive growth. In this context, continued expansion of the Benazir Income Support Programme will be important."
Copyright Business Recorder, 2017