Political consensus & good governance needed in Pakistan for economic stability; IMF

The International Monetary Fund (IMF) advised Pakistan to have political consensus and practice good governance to carry out structural reforms for macroeconomic stability.

The IMF highlighted the need to strengthen the fiscal federalism, monetary and financial policy frameworks; improve the business climate; achieve cost‑recovery in the energy sector; and expand social safety nets to protect the most vulnerable.

The IMF expressed these views at its executive board meeting that concluded first post-program monitoring discussions with Pakistan.

The IMF observed that Pakistan’s near-term outlook for economic growth is broadly favorable. Real GDP is expected to grow by 5.6 percent in FY 2017/18, supported by improved power supply, investment related to the China-Pakistan Economic Corridor (CPEC), strong consumption growth, and ongoing recovery in agriculture. Inflation has remained contained.

However, continued erosion of macroeconomic resilience could put this outlook at risk. Directors noted with concern the weakening of the macroeconomic situation, including a widening of external and fiscal imbalances, a decline in foreign exchange reserves, and increased risks to Pakistan’s economic and financial outlook and its medium‑term debt sustainability. 

IMF directors welcomed the authorities’ move to allow some exchange rate adjustment last December, but stressed the importance of greater exchange rate flexibility on a more permanent basis to preserve external buffers and improve competitiveness. They also encouraged the authorities to phase out administrative measures aimed at supporting the balance of payments as soon as conditions allow minimizing potential economic distortions.

IMF called on the Pakistan authorities to strengthen fiscal discipline through additional revenue measures and efforts to contain current expenditure while protecting pro‑poor spending. Complementing the recent increase in the policy interest rate with further monetary tightening would be important to address inflationary risks and help reverse external imbalances.

The IMF also emphasized the need for prudent debt management and caution in phasing in new external liabilities, and the urgency of tackling rising fiscal risks stemming from continued losses in public sector enterprises.