Political instability can erode economic gains

ISLAMABAD: While extending warnings for eroding macroeconomic stability amid widening fiscal and external deficits, the International Monetary Fund (IMF) has highlighted that Pakistan’s Net International Reserves (NIR) have declined from $7.476 billion in September 2016 to negative $0.724 billion till mid Feb 2018, posing serious risks to the country’s ability to repay its external debt and liabilities.

“Risks to this outlook are largely on the downside, given a difficult political setting and the possibility of further widening external and fiscal deficits in the coming months,” the IMF states in its latest Post Programme Monitoring (PPM) report released on Thursday.

The awaited PPM report released by the IMF after getting approval from Pakistan’s Prime Minister Shahid Khaqan Abbasi states that Pakistan’s macroeconomic stability gains achieved during the EFF have been eroding amid widening external and fiscal imbalances.

It states that risks to Pakistan’s medium-term capacity to repay the IMF loans could increase on current policies. An elevated current account deficit and increased external obligations are expected to double external financing needs in the medium term, taking a further toll on foreign exchange reserves.

While real GDP growth has continued to accelerate, external and fiscal imbalances have significantly widened in the context of strong domestic demand growth, limited exchange rate flexibility, accommodative monetary policy, fiscal slippages, and limited progress with key structural reforms. As a result, foreign exchange reserves have been declining, despite significant public sector external borrowing in recent months. “Alongside, risks to Pakistan’s medium-term capacity to repay the Fund have increased. An elevated current account deficit and increased external obligations are expected to double the external financing needs in the next three to five years, which could take a further toll on foreign exchange reserves” the PPM report states. As a result, scheduled repayments to the Fund as a share of gross reserves could rise to nearly 15 percent by 2022. Risks to this outlook are largely on the downside, given the difficult political setting and a possible.