IMF stresses agreements to foster open trade in Pakistan

KARACHI: International Monetary Fund (IMF) on Tuesday said global economic recovery provides an important opportunity to Pakistan to boost exports and growth, stressing need of bilateral and multilateral trade agreements to encourage open trade.

“Participation in trade agreements—multilateral, regional, and bilateral—can play an important role in fostering more open trade in… Pakistan,” IMF said in the Middle East and Central Asia Regional Economic Outlook report.

The IMF’s Middle East and Central Asia department annually prepares the regional economic outlook.

The Washington-based lender said uptick in exports during the first half of 2017 strengthened economic activity in Pakistan.

It said the country has improved export quality mostly in apparel production in the recent years. Apparel is a key value-added subsector of textile, which earns the country more than 60 percent of $20 billion annual exports. 

The Fund said positive spillovers from the stronger global economy would support external balance despite that it projects current account deficit at 4.9 percent in 2018 as against four percent in 2017 and 1.7 percent in 2016.

The deficit reflects higher oil prices and continued imports of capital goods, it added. IMF said a pickup in commodity prices will also improve the terms of trade for Pakistan whose main exports include cotton.

However, a decline in cotton prices would lower government revenue and export receipts and widen current account deficit, it added. “Agricultural activity remains vulnerable to weather and price developments in Pakistan.” 

The Fund said rising investment related to $55 billion China-Pakistan Economic Corridor infrastructure project and strengthening credit growth underpinned the increase in growth to 5.3 percent. It forecast real GDP growth at 5.6 percent in 2018. The IMF said the anticipated increase in public investment in Pakistan will help support the envisaged firming of medium-term growth. It projected the country’s fiscal deficit at 5.4 percent in 2018 as compared to 5.7 percent in 2017 and 4.4 percent in 2016.

The Fund said easing international food prices kept inflation in Pakistan broadly benign. However, it forecast consumer price inflation at 4.8 percent in 2018 as compared to 4.1 percent in 2017 and 2.9 percent in 2016.

IMF said private sector credit growth rate in Pakistan has risen since the beginning of 2017 because of accommodative monetary policy. It added that nonperforming loans continue to decline from high levels in Pakistan as banking sector regulatory reforms are progressing.

The Fund, however, said public debt has crossed to more than 50 percent of GDP due to weak domestic revenue mobilisation and high current expenditures (subsidies and wages). IMF warned that state guarantees could heighten debt vulnerabilities.

“As for the risks from the global environment, a more rapid tightening of global financial conditions (including due to faster-than-anticipated normalisation of monetary policy in the United States), could push up financing costs (including domestic financing costs), increase fiscal pressures, and reduce private investment,” it said. “Furthermore, such US monetary policy normalisation could lead to a stronger US dollar, which would amplify debt vulnerabilities [in Pakistan] with a significant share of debt in foreign currency.”