The International Monetary Fund (IMF) has warned Pakistan and other oil importers against rising oil bills for 2017 as a result of the rising global prices. The oil import bills are expected to be around 30pc higher than the previous year.
Any further increases could affect consumption, increase fiscal risks, and worsen external imbalances, the IMF has warned in its May 2017 Regional Economic Outlook for the Middle East, the Gulf, and North Africa, Afghanistan and Pakistan (MENAP).
The report goes on to say that the negative impact may be offset partially by higher remittances and other foreign support from oil-exporting countries in the region, principally benefiting Pakistan, Egypt, Jordan and Lebanon.
The IMF considers Pakistan to be among the countries where savings from low oil prices and reduced subsidies have led to increased spending on infrastructure, health care, education, and social services. But the IMF has shown concern that it may be difficult to maintain this spending in the wake of the oil prices being higher than expectations.
Moreover, the IMF report considered Pakistan to be among the countries that have been able to reduce fiscal deficit, improved business climate and whose growth is supported by enhanced public investment.
The IMF expects the entire region to increase its growth rate of 3.7 pc in 2016 to 4pc in 2017 and 4.4pc in 2018.
The report recognises Pakistan as benefitting from past reforms and whose growth will be supported by the broader global recovery, which is expected to boost demand from the region’s main export markets. The IMF also anticipates that Pakistan will also benefit from the implementation of the China-Pakistan Economic Corridor will boost investment.
But the report shows concern over the rising debt-service burden for Pakistan and other MENAP oil importers, where it absorbed between 28pc and 48pc of revenues in 2016 leaving less for social spending or public investment.
However, IMF is of the view that the fiscal deficit in MENAP countries fell from a high of 9.5pc of gross domestic product in 2013 to about 7pc in 2016.
In large part, this improvement reflects reduced fuel subsidies and lower transfers to energy-related state-owned enterprises. In Pakistan, efforts to increase revenue also helped, the report stated.
The IMF encouraged MENAP oil importers to generate higher revenues by broadening the existing tax base. This can be done through rationalising multiple value-added tax rates while Pakistan must also focus on simplifying its tax rate structure and eliminate exemptions. Pakistan must also focus on strengthening tax administration, the report added.
Countries such as Pakistan, Egypt, Jordan and Tunisia have a relatively high level of nonperforming loan ratios. The report urged the countries to improve their deposit insurance arrangements.
The report also warns MENAP oil importers of the changes in global financial conditions. While sovereign spreads for many oil importers have narrowed recently, “US interest rates have risen, and tighter and more volatile global financial conditions could increase borrowing costs for MENAP oil importers and their banks, adding to fiscal sustainability concerns, weighing on bank balance sheets, and undermining private sector activity,” it highlighted.
The IMF notes that such tightening could particularly impact countries such as Egypt, Jordan, Lebanon, Pakistan and Tunisia, who may be competing for funds in international markets.
The report alerts Pakistan, Afghanistan, Egypt and Lebanon that deteriorating security conditions or rising social border tension could negatively impact policy implementation and slow down economic activity.
