*ISLAMABAD: International Monetary Fund IMF has released the latest Reportabout Pakistan economic indicators and it depicts that all is not well oneconomic front as boosted by government. *
*Pakistan’s outlook for economic growth is broadly favourable, and real GDPis expected to grow by 5.6 percent in fiscal year 2017-18, said a report bycountry representative of the International Monetary Fund.*
The report summarising the first post-program monitoring discussions alsoexpressed concern over weakening of the macroeconomic situation, includingwidening of external and fiscal imbalances, decline in foreign exchangereserves, and increased risks to Pakistan’s economic and financial outlookand its medium-term debt sustainability.
It states that economic growth has continued to strengthen and inflationremained contained. This is supported by improved energy supply, investmentrelated to China Pakistan Economic Corridor, strong consumer growth,increased investor and consumer confidence and ongoing recovery inagriculture.
These are the factors which have been underpinning growth which could reach5.6 percent this fiscal year within a favourable inflation environment.
However, the report cautions that macroeconomic stability gains achievedduring the Extended Fund Facility (EFF) 2013-16 have been eroding, puttingthis outlook at risk.
Following significant fiscal slippages last year, the fiscal deficit isexpected at 5.5 percent of GDP this year, with risks towards a higherdeficit ahead of upcoming general elections.
The surge in imports have led to a widening current account deficit and asignificant decline in international reserves despite higher externalfinancing.
The current account deficit could reach 4.8 percent of GDP, with grossinternational reserves further declining in a context of limited exchangerate flexibility.
The current account deficit has been quickly widening, reflecting strongdomestic demand amid an overvalued exchange rate, fiscal slippages, and anaccommodative monetary policy stance.
As a result, foreign exchange reserves have been declining, reaching 2.3months of imports as of mid-February 2018, despite significant externalborrowing. Net international reserves have declined from $7.5 billion atthe end of the EFF program in 2016 to negative $0.7 billion in mid-February2018.
The fiscal slippages in FY 2016-17 have increased debt-relatedvulnerabilities, increasing Pakistan’s medium-term capacity to repay theIMF based on current policies.
An elevated current account deficit and increased external obligations areexpected to double external financing needs in the medium term, taking afurther toll on foreign exchange reserves.
However, risks to this outlook are largely on the downside, given adifficult political setting and the possibility of further wideningexternal and fiscal deficits in the coming months.