The International Monetary Fund (IMF) has recommended that Pakistan transition its economic growth strategy from heavy government involvement to a focus on reducing trade barriers to enhance production.Â
Esther Pérez Ruiz, the IMF’s resident representative for Pakistan, offered this advice during a session at the Sustainable Development Policy Institute (SDPI).
During the discussion, which covered the outcomes of the 2023 Stand-By Arrangement (SBA) and the elements of the newly approved Extended Fund Facility (EFF), Ruiz highlighted the need for Pakistan to reduce state intervention in the economy. She emphasized that such changes are crucial for boosting economic activity and achieving sustainable growth.
Ruiz detailed the performance of Pakistan under the IMF’s $7 billion EFF program, approved last month, noting improvements in economic stability. She corrected previous reports, clarifying that Pakistan has entered its 21st IMF program, not the 25th. She attributed previous miscounting to the inclusion of one-time assistance packages as full-fledged programs.
Since the initiation of the SBA in July of the previous year, there has been a significant boost in confidence in Pakistan’s policy-making. This improvement has been marked by a reduction in inflation to its lowest level in three years, a doubling of foreign exchange reserves, and visible signs of economic recovery.
Ruiz also addressed Pakistan’s recent struggles with external pressures and natural disasters such as the devastating floods in 2022, praising the country’s resilience in maintaining economic and financial stability.
Looking forward, Ruiz urged Pakistan to move away from protectionist policies and tax concessions that benefit only privileged groups. Instead, she advocated for implementing policies that enhance competition, diminish trade barriers, and streamline regulatory frameworks to support the growth of productive sectors.
Additionally, Ruiz supported substantial reforms in the public sector to enable it to generate resources essential for enhancing public services, developing human capital, and improving infrastructure equitably and sustainably.
The IMF expects the government to prioritize these reforms under the new EFF, aiming to set Pakistan on a path to resilient and inclusive economic growth. Ruiz called for a more equitable taxation policy, focusing on taxing the wealthy and incorporating untaxed sectors into the formal economy.
She also highlighted the importance of increasing the role of provincial governments in fiscal matters, consistent with the 18th Amendment, to better balance resource allocation and spending between federal and provincial levels.
