Press Release No. 17/117

IMF Staff Completes Article IV Mission to Pakistan

April 5, 2017

• Pakistan is in a position to build on recent progress with reforms to set the economy on a higher growth path
• Near-term economic policies need to address challenges in the fiscal, external, and energy sectors to safeguard the hard-won stability gains
• Maintaining the momentum with growth-enhancing structural reforms and expanding social safety nets will be important in the period ahead

An International Monetary Fund (IMF) staff team, led by Harald Finger, visited Dubai during March 28–April 5, 2017 to conduct discussions with the Pakistani authorities on the 2017 Article IV Consultation. At the conclusion of the mission, Mr. Finger issued the following statement:

“After three years of reforms, Pakistan has strengthened its macroeconomic resilience and economic outlook, providing an opportunity to build on recent progress with structural reforms and set the economy on a higher growth path. However, a number of challenges in the fiscal, external, and energy sectors could affect the hard-won stability gains in the period ahead. In this context, the mission calls for strong efforts with respect to fiscal consolidation and the implementation of key structural reforms, and vigilance in managing the country’s external position.

“The team expects economic growth to reach 5 percent in FY2016/17 helped by improving global economic conditions, rising investment related to the China-Pakistan Economic Corridor (CPEC), and recovering agriculture. At the same time, slower-than-expected growth of large-scale manufacturing and stagnant exports are weighing on growth prospects. The current account deficit is expected to reach 2.9 percent of GDP in FY2016/17 owing to a higher trade balance—in part reflecting increased imports of capital goods and energy—and stagnant remittances, while average headline inflation is expected to be contained at 4.3 percent. Over the medium term, growth could accelerate to about 6 percent on the back of stepped-up CPEC and other investments, improved energy supply, and continued structural reforms.

“Economic policies in the period ahead need to focus on preserving the hard-won stability and addressing emerging as well as medium-term challenges, notably in the fiscal, external, and energy sectors. Stronger fiscal consolidation efforts will be needed to make up for the lower-than-expected revenue in the first half of this year and achieve a further deficit reduction next year. Greater exchange rate flexibility and efforts to improve export sector productivity are needed to address the widening trade deficit as well as strengthen the economy’s ability to absorb medium-term CPEC-related and other capital outflows. Bringing the power distribution sector to full cost recovery will be critical to ensure long-term success of new energy initiatives and minimize fiscal costs. Alongside, monetary policy needs to remain prudent.

“Discussions also focused on the reforms needed to enhance Pakistan’s social safety nets, restructuring and seeking private sector participation in loss-making public enterprises, promoting financial inclusion and deepening, and improving the business climate. Maintaining the reform momentum will be critical for Pakistan to achieve its broader economic objectives, and continued effort will be important in the period ahead.

“The team thanks the authorities and technical staff for their cooperation and productive discussions, and reaffirms the IMF’s support of Pakistan’s economic reform program.

“The staff team met with Finance Minister Ishaq Dar, State Bank of Pakistan (SBP) Governor Ashraf Wathra, and other senior officials.”