Pakistan and Emerging Markets in the World Economy

IMF News, October 24, 2016

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Pakistan and Emerging Markets in the World Economy

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• Published: October 24, 2016

Emerging Markets in the Global Economy — overview and key trends

• Emerging and developing economies are home to 85 percent of the world’s population, and account for almost 60 percent of global GDP.
• Emerging economies have contributed more than 80 percent of global growth since the crisis.
• World growth forecasts: 3.1 percent this year and 3.4 percent next year; pre-2008-crisis average was 3.7 percent.
• Emerging market growth forecasts: 4.2 percent this year and 4.6 percent next year.
• China and India are growing at about 6-7 percent.
• Global transitions creating ripple effects:
  • China’s rebalancing (manufacturing → services, investment → consumption, exports → domestic demand) implies slower but more sustainable growth and affects trade partners.
  • China is among the top ten trading partners for over 100 economies that account for about 80 percent of world GDP; China is Pakistan’s third largest trading partner, accounting for close to 20 percent of overall trade.
  • The decline in oil and other commodity prices redistributed income from exporters to net importers and improved Pakistan’s external balances; however, lower growth among GCC countries slowed remittance growth—GCC countries account for nearly two thirds of remittance inflows to Pakistan.
• Policy implication: with subdued growth in advanced economies and shifts in China and commodity markets, emerging markets must rely more on internal sources of growth and strong policies/institutions to boost productivity and generate sustainable and inclusive growth.

Pakistan: building a strong foundation to join the emerging markets — recent progress

• Three years prior, Pakistan faced the brink of an economic crisis; a homegrown program of reforms, supported by the IMF, has strengthened the economy.
• Public finances improved and external reserve buffers were rebuilt; growth has been gradually strengthening.
• Power sector achievements:
  • Disruptive power outages reduced from about nine hours to one hour per day for industries.
  • Outages reduced from eight to five hours for urban consumers.
  • Costly and inefficient subsidies were reduced; circular debt has significantly decreased.
• Revenue and social safety net achievements:
  • Revenue collection improved by 2 ½ percent of GDP over the past three years by closing tax loopholes and widening the tax base.
  • More than 1½ million new beneficiaries were added to the Benazir Income Support Program; cash stipends were raised by more than 50 percent.
  • 30 percent of the population still lives below the poverty line.

Pakistan: next generation reforms — three priority areas and specific policy actions

• Priority 1 — Reinforce economic resilience
  • Public debt: about 19 trillion rupees, or 65 percent of GDP.
  • The interest bill is larger than Pakistan’s entire development budget.
  • Revenue collection: Pakistan currently collects little more than half of what is estimated as a feasible amount.
  • Public enterprise losses amount to more than two thirds of what is spent on the Benazir Income Support Program.
  • Policy actions:
  • Continue revenue mobilization to bring more people into the tax net and ensure fair tax contribution.
  • Reduce public enterprise losses to scale up growth-enhancing investment in physical and human capital.
  • Reduce budget deficits and build buffers while strengthening social safety nets to protect the most vulnerable.

• Priority 2 — Raise growth
  • Private investment in Pakistan: 10 percent of the economy; emerging markets average about 18 percent.
  • Pakistan’s exports: about 10 percent of GDP; emerging markets’ exports are nearly four times as high.
  • Policy actions:
  • Promote private investment and strengthen exports to raise productivity.
  • Increase public investment in infrastructure (including continued support for China-Pakistan Economic Corridor projects) to promote growth, job creation, and regional integration.
  • Improve the business climate by strengthening governance, increasing transparency and accountability, removing red tape, simplifying procedures to open new businesses, enforce contracts, and pay taxes.
  • Complete energy sector reform.
  • Potential gains: IMF studies show improving Pakistan’s business environment to the average of the Middle East and North Africa region could increase growth by 1½ percentage points per year.

• Priority 3 — Make growth more inclusive
  • Demographics and education:
  • Youth comprise about 60 percent of the population.
  • One out of every 12 children in the world that does not attend school lives in Pakistan.
  • Current public investment in education: 2½ percent of GDP; target to emerging market average: around 4 percent of GDP.
  • IMF research indicates improvements in education have contributed importantly to reducing income inequality within countries.
  • Women’s economic participation:
  • Closing gender gaps in economic participation could boost GDP by up to a third.
  • Policy actions:
  • Bolster public investment in education to prepare the workforce and increase competitiveness.
  • Promote policies to increase women’s participation in the economy to capture substantial GDP gains.

Conclusion — Pakistan and the IMF: continued partnership

• Pakistan has made significant economic progress and completed a successful three-year IMF-supported program.
• The IMF will remain engaged through policy dialogue and capacity building as Pakistan implements further reforms and strengthens institutions.
• The speech emphasizes Pakistan’s moment of opportunity to transform into a dynamic, vibrant, and integrated emerging market that can create sustainable jobs and prosperity for all.

Speech, Managing Director, International Monetary Fund, Islamabad, October 24, 2016

Content in this bundle

• Wp14101 (PDF)
• Staff Paper (PDF)

References

• Christine Lagarde
• People's Republic of China and the IMF
• Kingdom of Bahrain and the IMF
• Kuwait and the IMF
• Oman and the IMF
• Pakistan and the IMF
• Qatar and the IMF
• Saudi Arabia and the IMF
• United Arab Emirates and the IMF
• The IMF and Good Governance -- A Factsheet
• Speeches
• PRESS CENTER
• https://www.imf.org/en/home