Pakistan has strengthened its macroeconomic resilience and economic outlook, the IMF today said, underlining that the country now has an opportunity to build on recent progress with structural reforms and set its economy on a higher growth path.
"After three years of reforms, Pakistan has strengthened its macroeconomic resilience and economic outlook, providing an opportunity to build on recent progress with structural reforms and set the economy on a higher growth path," the International Monetary Fund said in a statement here after the conclusion of its annual consultations with Pakistani officials.
The annual consultations were held in Dubai from March 28 to April 5.
However, a number of challenges in the fiscal, external, and energy sectors could affect the hard-won stability gains in the period ahead.
In this context, the mission called for strong efforts with respect to fiscal consolidation and the implementation of key structural reforms, and vigilance in managing the country's external position.
Expecting the growth rate of Pakistan to reach 5 per cent in fiscal 2016-17, the IMF attributed this to the improved global economic conditions, rising investment related to the China-Pakistan Economic Corridor (CPEC), and recovering agriculture.
At the same time, slower-than-expected growth of large-scale manufacturing and stagnant exports are weighing on growth prospects, it said.
"The current account deficit is expected to reach 2.9 per cent of GDP in FY2016/17 owing to a higher trade balance-in part reflecting increased imports of capital goods and energy-and stagnant remittances, while average headline inflation is expected to be contained at 4.3 per cent," it said.
Over the medium term, growth could accelerate to about six percent on the back of stepped-up CPEC and other investments, improved energy supply, and continued structural reforms, the IMF report said.
According to the IMF, economic policies in the period ahead need to focus on preserving the hard-won stability and addressing emerging as well as medium-term challenges, notably in the fiscal, external, and energy sectors.
Stronger fiscal consolidation efforts will be needed to make up for the lower-than-expected revenue in the first half of this year and achieve a further deficit reduction next year, it said.
Greater exchange rate flexibility and efforts to improve export sector productivity are needed to address the widening trade deficit as well as strengthen the economy's ability to absorb medium-term CPEC-related and other capital outflows, the IMF said.
"Bringing the power distribution sector to full cost recovery will be critical to ensure long-term success of new energy initiatives and minimise fiscal costs. Alongside, monetary policy needs to remain prudent," the report said.
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