IMF to evaluate Pakistan’s economic progress in first review this month

In this picture taken on July 22, 2019, a labourer pulls a loaded cart along a street at a market in Rawalpindi. (AFP)

• So far, progress that has been achieved is in the right direction, says IMF director
• Pakistan’s current account deficit has plunged by a huge 64 percent

ISLAMABAD: An International Monetary Fund (IMF) mission is scheduled to visit Pakistan before the end of the month for the first quarterly review of a $6 billion bailout package on a set of economic indicators before releasing a second tranche of the loan, Jihad Azour, director for the Middle East and Central Asia Department at the Fund said, while addressing a press briefing in Washington on Saturday.
Islamabad signed off on a $6 billion stabilization program with the IMF in July this year which carried stringent conditions, including the implementation of tough taxation measures and an increase in energy prices to improve the country’s macroeconomic outlook.
The Fund will review the performance of Pakistan on a quarterly basis over 39 months, while the stabilization program focuses on decisive fiscal consolidation to reduce public debt and build resilience while expanding social spending.
“A mission will go to Islamabad at the end of the month for the first review,” Azour said.
“The reform agenda that is currently in place in Pakistan supported by the program with the Fund is the right recipe for Pakistan to improve macroeconomic stability,” he added. “So far, the progress that has been achieved goes in the right direction.”
He said, however, that it was still too early to give a full assessment of the situation.
“We need to wait for the mission to go there and to do the due diligence work on the ground,” he said.
Pakistan’s economic growth plummeted from 5.8 percent to 3.3 percent in the last fiscal year due to a sharp decline in industrial and agricultural production along with rising inflation and tax rates. The IMF last week said the country’s growth will further slow down to 2.4 percent in 2020 due to ongoing fiscal adjustments but pick up pace after the stabilization measures bore fruit and macroeconomic imbalances were adjusted.
To meet the IMF target, the South Asian nation has also devalued its currency more than 27 percent over the last year, jacked up the key interest rate to 13.25 percent with a resulting 12.55 percent inflation rate – the highest since June 2011.
Umair Javed, an economist and professor at the Lahore University of Management Sciences, said the basic purpose of the IMF program was the stabilization of the economy, not its growth.
“The IMF doesn’t care about rising inflation and unemployment in Pakistan as the growth will automatically start picking up if the government succeeds in reforming the whole financial system,” Javed told Arab News.
He said the IMF team would primarily evaluate Pakistan’s progress on the ‘twin deficits’ of the current account deficit (CAD) and fiscal deficit. So far, he added, the government had performed well by cutting the CAD down by 64 percent and fiscal deficit by 36 percent in the first quarter of the ongoing fiscal year.
“Pakistan is on track to meet all the IMF targets with respect to current account deficit and fiscal deficit,” he said. “Likewise, tax collection has increased by 15 percent compared with the previous year, besides some cogent steps taken for the documentation of the economy.”
The IMF will release its second loan tranche to Pakistan as per its schedule “even if the government’s performance is weak on one or two indicators,” he said.
On Saturday, in a series of posts on Twitter, Prime Minister Imran Khan praised his team for “turning around” the economic situation.
“It is a great achievement of our economic team to turn around the economy within a year,” he tweeted, and highlighted an increase in foreign investments and the huge plunge of the country’s CAD.