Pakistan is implementing a comprehensive program for fiscal consolidation, says ADB report

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The financial consolidation under the IMF program aims at reducing the large public debt while expanding social spending and establish a flexible exchange rate regime to restore competitiveness, and to rebuild official reserves,” says ADB report.

Pakistan_IMF_Program_ADB
Photo credit AFP.

Asian Development Bank’s Asian Development Outlook 2019 report that has been released on Wednesday acknowledges that Pakistani authorities are implementing a “comprehensive program of fiscal consolidation and monetary tightening to stabilize the economy and address the structural weaknesses.”

The report reiterates that the country’s economy is expected to grow slower than last year, with GDP growth projected at 2.8 percent in the fiscal year 2020.

Structural reforms

To bring about the structural reforms is one of the cures for the prevailing economic ills. To do structural reforms is likely to change the way the government operates.

According to the WEF, the structural flaws debacle by increasing the exchange rate flexibility, by improving competitiveness, by lowering the cost of doing business, and by bringing reforms in taxation.

The tax sector reforms mean improving the tax administration, widening the tax base and to facilitate tax compliance. On the taxation front, the current government is working on e-taxation and to enhance the documentation of the economy but widening the tax base still seems to be a challenge for the country.

The recently announced Ehsaas Program likely to safeguard the poor of the country and will reduce the poverty in foresighted outcomes. This program, if implemented in full vigor, will benefit some 3 million of the people.

In order to restore macroeconomic stability, as stated in ADO, the government plans to catalyze the significant international financial support and promote sustainable and balanced growth under a 3-year economic stabilization and reform program with IMF.”

The financial consolidation under the IMF program aims at reducing the large public debt while expanding social spending and to establish a flexible exchange rate regime to restore competitiveness, and to rebuild official reserves,” the statement added.

It also found that the agriculture sector likely to recover with the assistance of the government’s agriculture support package.

Also See: Despite Economic Overhaul, FDI In Pakistan Continues To Fall

“The real effective exchange rate is now thought to be near equilibrium and a lower and more stable rupee is expected to improve export competitiveness,” the report added.

Narrowing of trade deficit

“To strengthen fiscal discipline, the government has recently adopted the Public Financial Management Act in the context of the FY2020 finance bill.”

The report highlights that the trade deficit had shrunk by nearly half in the first half of July, adding that the further narrowing of the trade deficit and a continued positive trend in workers’ remittances, the current account deficit is projected to decrease further in FY 2020.

Rise in inflation

The report said that the rising inflation was mainly reflecting the currency depreciation and a considerable increase in domestic fuel prices.

ADO noted that the rupee depreciation against the US dollar is 24 percent in FY2019 and inflation also at considerable higher level as compared to the FY2018. The report notes the inflation at 7.3 percent in FY2019 as compared to the 3.9 percent in FY2018.

“Sizeable currency depreciation accelerated inflation but helped substantially narrow the current account deficit,” the report said.

Slowed GDP Growth

As per the report, the provisional estimates have found that GDP growth slowed from 5.5 percent in FY2018 to 3.3 percent in FY2019. It also noted that on the supply side, all sectors contributed substantially less to GDP growth than contributions a year ago. On the demand side, private consumption has accounted for 82percent of the GDP despite higher inflation and borrowing costs.

How do you see the government’s progress especially on the economic front in the first financial year? Share your thoughts in the comment section below


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