The International Monetary Fund (IMF) said high inflation and tightening global financial conditions will still weigh on Pakistan economy putting pressure on its exchange rate and external stability.
The observations were part of Fund’s country report published on Thursday.
Average consumer price index (CPI) inflation is expected to rise to 20%. in in current financial year while core inflation also remain elevated due to higher energy prices and the rupee exchange rate decline.
IMF says risks to Pakistan’s economic outlook and implementation of the program remained “high and prone to decline” because of what he called “very complex” internal and external environment.
“Consequences of the war in Ukraine through high food and fuel prices, and tighten global financial conditions will continue to weigh on Pakistan economypressure on exchange rate and external stability. Policy slippage remain and risk as you can see in Fiscal year 22, reinforced by weak capacity and powerful vested interests, with time of elections are uncertain given the difficult political environment.
“Socio-political pressures are expected to remain tall and might also weigh on policy and implementation of reforms, especially given the weak political coalition and their small majority in parliament,” the IMF report says.
Besides, higher interest rates higher than expected growth slowdown, pressure on exchange rateupdated policy reversals, weaker averageterm growth, contingent liabilities related to state-owned enterprises and climate change, the lender called significant risks.
He warned that high food and fuel prices could trigger protests and instability that may, in rotate, jeopardize macro financial and external stability and debt sustainability.
hard cash policy
To combat inflation, state bank of Pakistan (SBP) should remain ready to continue the tightening cycle, the IMF said. Central bank agreed to maintain a tight monetary policy. policy and take decisions regarding this in a forward- search and data management wayIt added.
According to the message, SBP also agreed to continue cutting subsidies on refinancing funds and phase out his participation in scheme for who will prepare the transition plan to the end of this is year.
“The authorities have moved work on original plan in consultation with other stakeholders, and bringing pricing of these diagrams are closer to market rates will limit them demand and thereby facilitate their phasing out with the activity has been transferred to the relevant development finance institution.
“SBP is also seeks to manage banks’ liquidity in line with his money policy goals,” the IMF report says.
Exchange rate
The creditor advised the authorities to continue allow in market determine the exchange rate as well as avoid suppression of any trend movement.
BUT market-certain exchange rate would remain effective at absorbing shock and was necessary for reducing external imbalances and strengthening up foreign exchange reserves.
“Letting more role for exchange rate flexibility to overcome external pressure will help maintain and improve reserve buffers for more reasonable levels in line with program goals,” it says.
perspective
the IMF said real GDP growth which was above the trend for in last two years as expected reduce up to 3.5 percent in 23 fiscal year and gradually return to 5%.
It stated that domestic demand it would be especially reduced how energy prices were taken on to consumers, and buying activity has declined power will be lost due to high inflation.
Inflation is forecast to fall significantly in in next fiscal year on in back of tightening fiscal and monetary policy. “SBP is expected to hit its inflation target of 5-7% range gradually with average-term inflation slows down to 6.5%.
Meanwhile, current account deficit will decline up to 2.5 pcs. of GDP in FY23 compared to 4.7% of GDP in previous financial year, it says. This will improve the reserve coverage of import up to 2.3 months from 1.7 months currently.
The foundation predicted public debt drops to 72% of GDP at the end of fiscal year 23 because of tighter fiscal policy and inflation undermines the cost of rupee debt. “With the support of the planned fiscal adjustment and robust growth public
debt predicted follow way down path to 60pcs of GDP by FY27, with external debt declining to 25pc of GDP”.
