IMF sees bleak future for Pakistan and several other states | Newspaper | DAWN.COM
WASHINGTON: The International Monetary Fund expects Pakistans 2011-12 fiscal deficit to widen to 6.5 per cent of gross domestic product, says a report released on Wednesday.
The IMF Outlook for the Middle East, North Africa, Afghanistan, and Pakistan (MENAP) also forecasts GDP growth of 2.6 per cent for Pakistan in the fiscal year ending in June 2012, compared with the governments target of 4.2 per cent.
It expects inflation to average 13 per cent compared with the governments target of 12 per cent.
Pakistans fiscal deficit was 5.9 per cent in 2010-11 and 1.1 per cent of GDP for three months ending September 30.
The countrys current account deficit is shown as 1.7 per cent of GNP. Similarly, imports are estimated at around $46 billion, while the exports trail behind at an estimated $30 billion during 2011-12.
Massive energy subsidies are one of the reasons for the swelling deficit. The IMF warns that the widening deficit could threaten Pakistans economic stability and hit its sovereign ratings.
The IMF has pushed Pakistan to narrow the gap by eliminating subsidies and increasing its tax-to-GDP ratio, one of the lowest in the world.
The report, however, notes that strong exports and remittances from overseas Pakistanis have helped offset capital outflows.
The report portrays Pakistan and Libya as among those characterised as having the most difficult business environments in the MENAP region. Business environment indicators help shed light on how well labour markets function, and many MENAP countries, including Pakistan, are at the bottom of global labour market efficiency rankings. Matching labour market efficiency against the share in the population of those under age 14 reveals the gravity of the problem that some MENAP countries face in absorbing new entrants. The challenges are most acute in Pakistan, Egypt, Libya, Mauritania and Syria.
The survey identifies floods and violence as among the main reasons for weakening economic activity in Pakistan. Pakistan is also among the countries where real policy rates are close to zero or slightly negative.
The IMF predicts that moderating food and fuel prices and continued weak aggregate demand will exercise a dampening effect on inflation in 2011-12 in MENAP countries. But wage increases, recently granted in the public sector in Pakistan and other countries, could filter through to the private sector and result in inflationary pressures as the economy recovers.
In some countries, inflation will remain high in 2012 because of domestic factors. The report warns that structural factors and entrenched expectations of high inflation in Pakistan and Egypt will contribute to this pressure.
Pakistan is also among the countries experiencing smaller increases in import costs, because of weaker economic activity and lower oil intensity. Governments in Pakistan, Egypt, Jordan, Mauritania and Morocco have responded to growing social unrest, the economic downturn, and higher commodity prices, by significantly expanding subsidies and transfers. The increases have been only partially compensated for by cuts in expenditure.
In the region where the IMF has placed Pakistan, the overall fiscal deficit before grants is projected to exceed 8 per cent of GDP in 2011, while grants have expanded only modestly, borrowing costs in international markets have risen. As a result, governments in Pakistan, Egypt, Morocco and Syria are relying heavily on domestic financing.
The IMFs outlook for MENAP takes into consideration the unparalleled uncertainty and economic pressures witnessed by the region from both domestic and external sources, including the worsening global economy.
It predicts that MENAP countries will face further slowdown in growth with diverging trends, amid uncertainty from the regional unrest and a possible slump in the global economy. In 2012, MENAP countries are expected to grow 3.7 per cent, slower than the 3.9 per cent expansion projected for 2011. The 2011 forecast is unchanged from a projection in April. In 2010, the regions GDP grew 4.4 per cent.
As most countries in the region have already used their fiscal and international reserve buffers to respond to deteriorating economic conditions, there is less room left to respond to future shocks, the IMF warns.
