IMF praises high economic growth
LAHORE (December 24 2007): The International Monetary Fund (IMF) has appreciated Pakistan's sustained high growth and also acknowledged that adherence to pro-poor policies has helped lower poverty rates. The IMF has noted that the South Asian country's economy continues to perform well despite recent political developments in the transition period as well as turbulence in the international capital markets.
The IMF in its latest report based on the IMF executive directors' assessment welcomed Pakistan's monetary policy tightening that has occurred since mid-year as it also observed that a main challenge will be maintaining economic growth while reducing inflation and the current account deficit.
According to a message received here, executive directors welcomed that Pakistan's economy continued to perform strongly in 2006-07. Real GDP growth increased, the international reserve position strengthened and debt ratios declined.
"The favourable economic performance and structural reforms to improve the business climate have spurred capital inflows in recent years," the IMF reported on this week's executive directors' conclusions for the year 2007.
"The economy has shown considerable resilience to recent domestic political uncertainties and the turbulence in international capital markets, with provisional data for activity in large-scale manufacturing, showing continued strong growth in the first quarter of 2007-08," the directors said.
The assessment came after the Executive Board of the International Monetary Fund (IMF) concluded the 2007 Article IV consultation with Pakistan. Under Article IV of the IMF Articles of Agreement, the IMF holds bilateral discussions with members usually every year.
It said Pakistan has experienced a remarkable turnaround in its economic performance since 2001/02. Sound macro-economic management and wide-ranging structural reforms have contributed to high real GDP growth, a reduction in the debt burden, and an improved business climate. "Adherence to pro-poor policies has helped lower poverty rates," it acknowledged, while briefly recounting the country's performance in recent years. Increasingly, Foreign Direct Investment (FDI) and portfolio flows have become an important source of external financing.
"Economic developments during the fiscal year ending June 2007 remained favourable. Real GDP growth increased to 7 percent with a recovery in agriculture and a strong performance of large-scale manufacturing and services; the debt ratio continued to decline; and the international reserves position strengthened further."
At the same time, the directors referred to challenges including containing inflation, looking after the external current account deficit and said Pakistan's external financing needs remain large. They said continued vigilance is required to reduce vulnerabilities and maintain investors' confidence.
The economic program for 2007-08 envisages real GDP growth of 7.2 percent, the directors noted and the budget deficit target has been set at 4 percent of GDP.
Looking beyond 2007-08, the IMF directors stressed that further fiscal consolidation will be required to reduce inflation and the external current account deficit, while lessening pressures on real interest rates. They supported a broadening of the tax base and the use of public-private partnerships in infrastructure development.
There was also agreement that the real effective exchange rate is broadly in line with Pakistan's economic fundamentals as they underscored that fiscal adjustment accompanied by higher levels of investment and vigorous implementation of structural reforms constitute the main avenues to improve external competitiveness. The directors encouraged implementation of structural reforms in order to sustain growth and poverty reduction.
Pakistan is currently passing through political transition as it heads toward parliamentary polls on January 8, 2008. President Pervez Musharraf, under whose eighth-year tenure the country witnessed a continued economic upturn, has taken oath as civilian President, restored the constitutional rule and pledged fair and free polls as the country's stock exchange and business community have responded positively to these steps and remain upbeat about future prospects.
Moreover, Caretaker Finance Minister Dr Salman Shah, in an interview to a private channel, said the government is paying Rs 13 billion per month as subsidy to keep the oil prices in check.
"Global oil prices have increased to unprecedented level from $20 to $100 per barrel within a few years. The government will have no option but to ultimately pass on the increase to consumers as huge subsidy is increasing budget deficit", he added.
In next six months of the current financial year, the oil increase will have to be passed on to the consumers in small chunks, he said. Dr Salman Shah said the food prices in the country are increasing at much cheaper rates of 10 to 11 percent as compared to global increase rate of 20 to 25 percent per annum. Ultimately, the food prices in Pakistan will come in line with world food prices.
He said wheat is available in the country at Rs 16 per kg while world price of wheat is Rs 30 kg. A 35 percent regulatory duty has been imposed on wheat product to check its exports.
Ultimately, the prices of wheat, corn, and cotton would also move towards international prices. It will give a big jump to rural economy. The strategy was being devised to provide subsidy to lower income group, he added.
Dr Shah blamed the extremists for affecting country's exports as country's exports could have been over $20 billion as compared to $18 billion right now. The world is being convinced that Pakistan is a safe place to do business, he added.
He said the next government is going to inherit a very healthy economy. Economy is in very strong and solid position and it continues to grow and prosper, if we continue current policies, Dr Salman Shah added.
Business Recorder [Pakistan's First Financial Daily]
