Pakistan needs to reduce its current account deficit: IMF

DUBAI: The International Monetary Fund (IMF) has urged Pakistan to bring its current account deficit under control, an official said, as the country's new government seeks an increase in the size and duration of the current IMF programme.

Pakistan's current account deficit ballooned to $13.2 billion in the nine months of its fiscal year from a gap of $275 million a year earlier on the back of soaring oil import costs, official data showed.

Rating agency Moody's expects the deficit to widen to 5-6 percent of gross domestic product in the current fiscal year ending June 30, up from its earlier 4 percent projection, putting greater pressure on Pakistan's foreign reserves.

Jihad Azour, director of IMF's Middle East and Central Asia Department, told Reuters the fund's team will assess the policy priorities of the new government and the economic impact in the context of the war in Ukraine.

"But of course, we have been over the last few months highlighting the importance of maintaining the current account situation under control… reduce the current account deficit."

He did not elaborate on the policy actions, but the IMF has said earlier a continued commitment to a market-determined exchange rate and a prudent macroeconomic policy mix will help reduce the deficit.

A new Pakistani government that took over this month from ousted Prime Minister Imran Khan faces enormous economic challenges, predicting the fiscal deficit will exceed 10 percent of GDP at the end of the current financial year.

Finance Minister Miftah Ismail said on Monday Pakistan has sought an increase in the size and duration of its $6 billion IMF programme agreed in 2019.

Payment of the funds has been slowed down several times because of IMF concerns over monetary policy and fiscal tightening measures.

Pakistan had requested to extend the EFF arrangement through June 2023 after the talks in Washington agreed to drop the subsidies.

From April to June, Pakistan will be giving more than $2 billion of subsidies to the oil and power sectors.

If the IMF review is cleared, Pakistan will get more than $900 million, which will also unlock other external funding.

When asked whether Pakistan will need to take certain steps first, such as cutting oil and gas subsidies, Azour said these will be discussed during the visit.

"We'll discuss these issues and therefore I will not preempt those discussions," he said. Finance minister Ismail said before leaving for Washington that to revive the IMF programme, Islamabad would cut both ordinary expenditure and its funding for development projects.