As Pakistan navigates through economic instability characterised by unsustainable public debt, outgoing Interim Finance Minister Dr Shamshad Akhtar emphasizes the urgency for the new government to secure an early deal with the International Monetary Fund (IMF) for a long-term bailout package.
This move is crucial to sustaining the momentum for necessary reforms, according to Akhtar’s remarks in the monthly economic outlook released on Thursday.
The interim finance minister said that market confidence has seen a revival in recent months, leading to an anticipated GDP growth of approximately 3% for the second quarter of the current fiscal year, an improvement from the 2.1% growth recorded in the first quarter.
Akhtar highlighted the pressing issue of Pakistan’s public debt, which has significantly exceeded the Fiscal Responsibility and Debt Limitation Act (FRDL) thresholds since 2013, undermining the country’s economic stability.
Despite efforts towards fiscal consolidation, the budget deficit in the first half of the year surged by 58% compared to the same period in the previous year, raising concerns over debt sustainability.
The completion of the last review of the ongoing IMF programme, which would unlock a $1.2 billion loan tranche, is deemed critical by Akhtar.
More importantly, she advocates for the negotiation of a new medium-term facility with the IMF to anchor and facilitate the execution of challenging reforms.
With Pakistan’s debt reaching Rs81 trillion and debt servicing costs surpassing net federal income, analysts suggest that any forthcoming IMF programme should explore debt restructuring options.
Akhtar also urged the next government to prioritize the restructuring of the Federal Board of Revenue (FBR), the privatization of unprofitable state-owned enterprises (SOEs) like PIA, and the enforcement of an SOE policy to enhance governance and financial performance.
Despite supportive measures from the privatisation ministry and the finance ministry, progress in these key areas remained elusive under the caretaker government.
The finance minister attributed the difficulty in managing public debt to poor tax collection, escalating SOE losses, and the highest interest rates since 1972.
Recent policy measures have bolstered market confidence, contributing to a rebound in economic activities.
The easing of import bans and other restrictions has alleviated supply constraints, supporting an upturn in economic performance.
Manufacturing, in particular, has shown robust growth, with large-scale manufacturing expanding by 8.2%.
Looking ahead, the finance ministry anticipates a decline in headline inflation to between 24.5% and 25.5% in February 2024, a slight improvement from previous estimates.
This expected decrease in inflation is attributed to better crop yields and smoother commodity supply chains, despite recent adjustments in fuel and utility prices.
Foreign exchange reserves have dipped below $8 billion, reflecting ongoing economic pressures, including a 21% drop in foreign direct investment.
Notably, a significant withdrawal of Chinese investment from the power sector has been reported, exacerbating liquidity challenges for Chinese-operated power plants in Pakistan due to unpaid dues.
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