Tackling financial challenges

The challenge is to make growth more balanced

In an interview with this paper, the resident representative of the International Monetary Fund (IMF) in Pakistan has struck a positive note on the state of the country’s economy by noting that not everything is going wrong and that economic growth has been strong. The challenge is to make this growth more balanced, so that it involves more exports and does not overburden the balance of payments. IMF Representative Tokhir Mirzoev noted that August had brought good news for the economy with stronger exports, remittances and foreign direct investment on the one hand and some moderation in import growth on the other. At the same time, the tax revenue outcome was also encouraging.

And yet, the IMF has urged Pakistan to take immediate policy actions to tackle challenges to stability of the external sector and the budget as it had pointed out that despite a strengthening growth momentum, Pakistan’s imbalances on both the external and fiscal fronts increased in the last fiscal year and require the attention of the policymakers. This is the first response of the IMF since the external sector has started unravelling.

Pakistan witnessed record current account and budget deficits in the last fiscal year 2016-17, giving rise to speculation that it may have to seek another IMF programme. But before it gets into any such understanding, the IMF has warned that the challenges facing Pakistan’s economy are significant and without a supportive policy mix, the current fiscal year could be a difficult one. This is a challenge for the PML-N government. So far, the government has tried its best to look for less direct measures to balance the books. For example, the State Bank this week released the balance of payments position that showed a $2.6 billion deficit in the current account during July-August FY17. This is 102% higher over the corresponding period last year. Using administrative measures to correct external imbalances is rarely effective. Administrative measures do not make an economy more competitive in the long run.

Published in The Express Tribune, September 21^st, 2017.

Like Opinion & Editorial on Facebook, follow @ETOpEd on Twitter to receive all updates on all our daily pieces.