Worrying IMF report

Weak economic growth figures mean that such cuts to essential government services will continue


Editorial December 26, 2019

Another worrying report on the economy appeared recently, cautioning that the IMF still believes Pakistan remains at risk of being placed on the FATF ‘blacklist’. Being blacklisted would have severe implications on capital inflows, including foreign investment. It would also slow progress in refinancing loans from major bilateral creditors. The report’s critique of Pakistan’s anti-money laundering deficiencies, including in addressing terror financing, presents a security concern. Pakistan only has until March 2020 to become compliant with FATF conditions on terrorism financing investigations and targeted financial sanctions, according to the IMF. Given the fact that the government lacks a majority in the upper house, there is a strong possibility that legislation to meet these conditions may not be passed in time.

The IMF report also mentioned that there will be a significant increase in electricity prices from next month, in addition to the reintroduction of debt-servicing surcharges in power bills. The tax would be used to pay circular debt servicing costs, which has crossed Rs100 billion per year. The report also admits that the quality of fiscal adjustments under the IMF programme was not high in the first quarter of this fiscal year. First-quarter budget targets were only met by blocking Rs40 billion in payments to BISP beneficiaries and slashing health and education spending by Rs92 billion across Pakistan at federal and provincial levels.

Weak economic growth figures mean that such cuts to essential government services will continue. The IMF has set an economic growth rate target of 2.4% for the current fiscal year. It had to review this figure after setting it earlier this year. Although it remains unchanged, it does cast a shadow over the federal government’s already modest target of 3.5%. Even the ‘good news’ is worrying. Growth is expected to “strengthen” to around 3% in the next fiscal year as policies take hold and confidence and investment strengthen. Concerns also remain over social conditions, poverty, inflation, and rising debt. The new year hasn’t even started, and it already feels like a bad one.

Published in The Express Tribune, December 26th, 2019.

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