Businesses worried about post-IMF economic health

LAHORE: Business houses in Pakistan are concerned about how the economy would adhere to fiscal discipline and maintain a sustainable growth after the recent exit from reform program of the International Monetary Fund (IMF), a survey report said on Wednesday.

“While the short-term economic outlook remains positive there is a growing concern over how Pakistan will cope now that its IMF programme has come to an end,” said a Global Economic Conditions Survey, conducted jointly by Association of Chartered Certified Accountants and Institute of Management Accountants. It is the largest regular economic survey of accountants around the world.

The survey found a marked drop in business confidence in Pakistan in Q3 of 2016. “On the positive side, businesses are continuing to benefit from a series of aggressive rate cuts by the central bank as well as the start of construction of the Pakistan-China Economic Corridor, a series of huge infrastructure projects worth nearly $50 billion (20 percent of GDP) that are designed to transform the country’s substandard infrastructure,” the report said.

It said foreign exchange reserves have been rebuilt over the past few years, which reduces the chances of a balance of payments crisis. “However, there is concern that fiscal discipline may start to slip without the IMF to monitor progress.”

Pakistan signed a $6.7 billion extended fund facility (EFF) program of the IMF in 2013 to overcome its balance of payment crisis. Over the past few years, the growth improved to 4.7 percent in the last fiscal year, while the government set a target of 5.7 for the current fiscal year. 

Recently, the country exited from the 36-month EFF program after receiving all the loan tranches under the program.  

Despite global business confidence, being at its highest level since the second quarter of the last year, Pakistan has not witnessed similar growth. 

One reason is that poverty is most concentrated. The country is in deep recession due to poor harvests and collapse in crop prices. 

In South Asia, performance of other economies boosted the overall business confidence in the region. 

In India, which is now the fastest-growing major economy in the world, the confidence was boosted after latest government measures to curb black economy and imposition of goods and services tax, which should bolster revenues and increase competition across the country’s various states.

Stabile prices have improved economic outlook for the world’s major commodity producers – mainly in Latin America, Africa and the Middle East. 

In certain countries, the collapse in prices, however, has opened holes in most governments’ finances that will need to be repaired over the coming years. Lower government spending is likely to hamper growth in these economies for the next couple of years.

“A key risk to the global outcome, however, is linked to developments in China,” the survey report said. “Although recent economic data of China has continued to improve, the rapid build-up in debt over the past few years has raised concerns about the medium-term outlook.” 

A financial crisis that causes a sharp slowdown in growth in the world’s second-biggest economy will send shockwaves through the rest of Asia and beyond.