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IMF to approve bailout package for Pak; Fitch says it would negatively impact short-run growth

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ANI Asia

The International Monetary Fund (IMF) is scheduled to hold its meeting in Washington on July 3 to consider three-year 'extended fund facility' of USD six billion for Pakistan.

Sources familiar with the matter told Dunya News that Pakistan has adopted a tight monetary and fiscal policy stance based on all terms and conditions of the global moneylender in order to secure a three-year bailout package.

The bailout package will help Pakistan to pay its external debts, recover from its fiscal deficit, keep foreign exchange reserves to the equivalent of three months of imports and curb further devaluation of the rupee, sources added.

 

Prime Minister Imran Khan's government in its budget proposals for the next financial year has already added IMF loans worth Rs 357 billion.

An IMF team will visit Islamabad every three months to review the economic indicators of the country.

According to analysts, financial assistance received from 'friendly' countries has not proven to be enough for the Pakistani government to recover its cash-strapped economy.

They are of the view that chances of Pakistan securing the bailout package are high as the country has accepted all terms and conditions; however, the deal would have adverse effects on its economic growth.

US-based Fitch Solutions, the macro research arm of global credit rating agency Fitch Ratings, on Thursday revised the country's real GDP growth for the outgoing fiscal year from 4.4 per cent to 3.2 per cent, and the upcoming fiscal year 2019-20 to come in at 2.7 per cent, down from 4.0 per cent previously, Dawn reported.

Fitch said the tax-based measures to cut the deficit, coupled with constantly rising inflation, would further erode purchasing power and result in a marked decline in consumption.

"Given our expectations for continued upside pressure on consumer prices over the coming months, we believe that the consumers' purchasing power will continue to fall over the coming months, thereby weighing on consumption," it said.

However, it noted that some of the effects of price hikes would be partially offset by the "government's populist measures, such as providing electricity subsidies to consumers who use less than 300 units of electricity per month".

The research firm further gave a bleak forecast on the government's aims to raise tax revenues, compounded by little improvement in net exports weighed down by a global slowdown and the likelihood of imports further increase over the coming months.

"While Pakistan and the IMF have agreed on focusing on tax-based measures to manage the fiscal deficit, according to media reports, we believe that the Pakistani government will fall short of its ambitious revenue targets and will likely have to cut spending to meet the primary deficit target of 0.6 per cent of GDP," it added.

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First Published: Jun 28 2019 | 4:20 AM IST

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