IMF, Pakistan expect 2.8% economic growth

Lender likely to agree on increase of Rs103b in budget deficit limit.

ISLAMABAD:

The International Monetary Fund (IMF) and the government have estimated a nominal growth in national output and a persistent double-digit inflation this fiscal year that may leave per capita income at last year’s level, indicating no improvement in living standards of a majority of the population.

Negotiating teams of IMF and the finance ministry have estimated gross domestic product (GDP) growth in a range of 2.5 to 2.8 per cent. Population growth rate is estimated at around 1.9 per cent that will result in almost static growth in per capita income. During the last financial year, the per capita income was recorded at $1,042.

According to the latest United Nations report, 51 per cent Pakistanis live in multi-dimensional poverty. Planning Commission Deputy Chairman Dr Nadeemul Haq recently said the country needed eight per cent growth per annum to create jobs for the young people who are 40 per cent of the total population.

Finance ministry officials said IMF and the government projected that by June 30 average inflation based on the Consumer Price Index would be 15 per cent, indicating no let-up in the woes of inflation-stricken people.

The two sides are in the process of reconciliation of data. IMF’s Pakistan desk chief in Washington Adnan Mazari also joined the talks on Thursday. Earlier, a mission of the Fund, which suspended the $11.3 billion loan programme in July last year, arrived on an eight-day visit.

The outcome of the talks may not have a positive impact on the programme as IMF has told the government that the release of loan installment is not possible without corrective measures on fiscal and power sides.

Officials said during the third day of technical-level talks the two teams covered some initial ground, as IMF indicated that it may relax the budget deficit limit by Rs103 billion, which may provide the much-needed fiscal space in the wake of rising cost of defence and subsidies.

Sources said the government had projected that by year-end the budget deficit, despite expected new revenue measures, will remain around 5.8 per cent of the total size of economy. The IMF side has worked out a five per cent plus deficit that provided a sigh of relief to the finance team that the Fund may agree on a 5.3 per cent deficit or Rs907 billion.

The anticipated new ceiling is 0.6 per cent or Rs103 billion more than what the IMF had earlier agreed. The government has informed IMF that during the first eight months the gap between expenditures and income stood at 3.8 per cent of GDP or Rs650 billion. Sources said by the end of March the deficit could be around 4.2 per cent or Rs719 billion.

The government has informed the Fund that this year subsidies will cross Rs300 billion, which is Rs70 billion more than the budgeted amount. Sources said defence spending has been estimated to rise above the target of Rs442 billion. However, they added the final number would depend on actual reimbursements of the Coalition Support Fund by the United States, as any shortfall on this head might be compensated through supplementary budget grants.

Policy-level talks are expected to commence from Saturday where the Fund will give Islamabad a new budget deficit target and set of measures required to restore the programme, said the officials.

Published in The Express Tribune, March 4^th, 2011.