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Pak faces challenging economic outlook: IMF

world Updated: Oct 05, 2012 12:16 IST

Observing that Pakistan faces a challenging economic outlook, the IMF has called for decisive and far-sighted action to address the situation and pegged the country's growth rate in 2012-13 at 3-3.5%. The growth rate, it said, needs to be accelerated in view of the growing labour force.

"Pakistan faces a challenging economic outlook. GDP growth in 2012/13 is projected to be in the 3-3.5% range, which needs to accelerate in order to absorb the growing labour force," Jeffrey Franks, a senior IMF official, said in a statement at the conclusion of the recent visit of the Fund's Staff Mission to Dubai and Islamabad.

The International Monetary Fund also warned that inflation, which has fallen recently, is expected to be back in double digits by the middle of next year if corrective measures are not taken by Pakistan to reverse monetary financing of the fiscal deficit.

Stating that the country's external position is weakening, Franks said that while the current account deficit is not large by international standards, financial flows have weakened and central bank reserves have fallen.

"Decisive and far-sighted action is needed to address this challenging outlook," Franks said.

Underlying that inflation remains high and represents a regressive tax that disproportionately hurts the poor, he said the ultimate goal of the State Bank of Pakistan (SBP) should be to bring it down significantly by using policy tools.

"Reduced recourse to central bank financing by the government is also critical for a durable reduction in inflation.

While the banking sector is well-capitalised and profitable, the level of non-performing loans is relatively high," he said.

Franks said addressing macroeconomic imbalances will help supporting higher growth, but the energy problems facing Pakistan today are perhaps the largest single impediment to higher economic growth and are a major factor behind macroeconomic imbalances.

"The mission stressed that a comprehensive approach to reform is needed to tackle these problems, which include the lack of full cost recovery, resulting in costly and untargeted subsidies, governance and efficiency difficulties in energy distribution, regulatory inadequacies, and insufficient investment in new energy production,” he said.

"Tackling the energy problems will also benefit macroeconomic stabilisation. In addition, other structural reforms are also needed to boost growth, including measures to enhance the business climate and to restructure public sector enterprises beyond the energy sector," Franks said.