Pakistan’s economy is stablising and the IMF has approved a new tranche worth $452 million of the bailout package. It seems that everything is fine on the economic front. The central bank wants the country to come out of the chronic boom-and-bust-cycle through this financial programme.
The IMF released the first review report stating the programme now moves to structural reforms which are important to build an institutional framework for the country. The report is overall positive for Pakistan but the IMF has identified several areas where the government should focus its attention or it may lead to agitation within the country. The nation needs job creation which is hampered by slow growth, and the only solution is to increase development spending to create more jobs.
According to the report, Pakistan has met six performance criteria, but missed five indicative targets. The missed targets include tax revenues, spending on revised health and education, net tax refund accumulation, power sector arrears, and cash transfer spending. The list indicates there is room for significant improvement.
Pakistan missed the tax collection target through the FBR by Rs265 billion. The government released just Rs5 billion for BISP against a target of Rs45 billion and is removing 0.6 million beneficiaries. Real GDP growth is projected at 2.4% in the fiscal year, the lowest in the region. Inflation is expected to rise as increased energy tariffs are expected to kick in.
On a positive note, Pakistan has made progress on the anti-money laundering and terror financing regimes as per FATF directives although a lot more needs to be done. Pakistan’s performance by FATF will be reviewed in February next year but insufficient efforts against terror groups may lead to the country being blacklisted. This would be devastating for the economy and lead to capital outflows.
Governor State Bank Reza Baqir has maintained that authorities are committed to complete the action required for structural reforms. The central bank wants to boost exports now that the economy is showing signs of stability by offering cheap credit to export-oriented industries. The government is expected to announce a new export policy next month giving tax breaks to various sectors to boost exports.
Pakistan has never established itself as an export-oriented economy and needs to look beyond textiles to boost outbound trade. Developing countries that have raised their standard of living, notably Malaysia and Thailand, have relied on exports. Pakistan needs to move forward as an export-oriented economy to get of the financial crises that has historically affected us.