ISLAMABAD – IMF warns Pakistan against consequences of blacklisting atFinancial Action Task Force.
The absence of a majority in the Senate may hinder the adoption oflegislation needed to achieve IMF program objectives, which couldjeopardize the availability of external financing, besides a potentialblacklisting by the Financial Action Task Force (FATF) could result in afreeze of capital flows and lower investment to Pakistan.
This has been stated by the International Monetary Fund (IMF) in its latestreport “First Review Under the Extended Arrangement Under the Extended FundFacility and Request for Modification of Performance Criteria”.
The report stated that notwithstanding the encouraging start of theprogram, risks to the outlook remain high. Growth is currently weak andsignificant fiscal adjustment is needed in the coming years.
While the risk of a disorderly adjustment has abated due to thewell-managed transition to a market-determined exchange rate and theavailability of external financing, risks to the economic outlook aresignificant.——————————
Fiscal slippages and, more generally, resistance to reform from vestedinterest groups could undermine the program’s fiscal consolidation strategyand put debt sustainability at risk.
The absence of a majority by the ruling party in the upper house may hinderthe adoption of legislation needed to achieve program objectives.
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Also, provinces may under-deliver on their commitments to budget parametersand related objectives over the program period. Lukewarm progress onstructural reforms, especially those aimed at strengthening the governanceof economic institutions may result in stagnant economic activity andlittle tangible benefits for the population, intensifying pressures tobacktrack on policy commitments.
The global economic backdrop poses increasing headwinds and weaker thanexpected activity may affect growth and current account deficitprojections. Against all these risks, the authorities’ steadfast commitmentto the program and decisive policy and reform implementation could lead toa faster recovery, maintained the report.Economic Outlook
It further stated that the economic outlook is broadly unchanged from theprogram request. The real GDP growth is projected at 2.4 percent in FY2020, but net exports are now expected to provide a larger contribution togrowth, mainly due to greater import compression.——————————
The growth is projected to strengthen to around 3 percent in FY 2021, aspolicies take hold and confidence and investment strengthen and 4.5–5percent over the medium-term, with the output gap closing at the end of theprojection horizon.
