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IMF sees ‘tentative signs’ of Pakistan’s economic activity picking up

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10 months ago

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  • IMF sees inflation at 18.5% by end-June 2024.
  • Says current account deficit to rise to 1.5% of GDP in FY24.
  • Market-determined exchange rate urged to buffer external shocks.

With the approval by the Executive Board for the release of the second tranche under the Stand-By Arrangement (SBA), the International Monetary Fund’s (IMF) Deputy Managing Director Antoinette Sayeh commented that the economy is showing “tentative signs of activity picking-up and external pressures easing” for cash strapped Pakistan.

Sayeh noted that the country’s performance under the SBA has supported significant progress in stabilising the economy following the significant shocks of the last fiscal year.

“There are now tentative signs of activity picking-up and external pressures easing. Continued strong ownership remains critical to ensure the current momentum continues and stabilisation of Pakistan’s economy becomes entrenched,” said the deputy MD who was also the chair of the board meeting that approved the release of $700 million. The release means total disbursements under the SBA stand at close to $1.9 billion.

“The authorities’ strong revenue performance in FY24Q1 as well as federal spending restraint have helped to achieve a primary surplus in line with quarterly program targets. However, in the context of pressures, including from provincial spending, efforts at mobilising revenues and ongoing non-priority spending discipline need to continue to ensure that the budgeted primary surplus and debt goals remain achievable,” said the deputy MD.

The IMF official advised the authorities in Pakistan to go for broad-based reforms to improve the fiscal framework by mobilising additional revenues specifically from non-filers and under-taxed sectors and improving public financial management. She believes these actions would give Pakistan fiscal space to further social and development spending.

“Inflation remains high, affecting particularly the more vulnerable, and it is appropriate that the State Bank of Pakistan maintains a tight stance to ensure that inflation returns to more moderate levels. Pakistan also needs a market-determined exchange rate to buffer external shocks, continue rebuilding foreign reserves, and support competitiveness and growth. In parallel, further action to address undercapitalized financial institutions and, more broadly, vigilance over the financial sector is necessary to support financial stability,” said Sayeh.

IMF expects 2% growth

The lender in its statement also stated that macroeconomic conditions have generally improved in the country and expects 2% growth in ongoing fiscal year as the “nascent recovery expands in the second half of the year”.

“The fiscal position also strengthened in FY24Q1 achieving a primary surplus of 0.4% of GDP driven by overall strong revenues. Inflation remains elevated, although with appropriately tight policy, this could decline to 18.5% by end-June 2024,” said the IMF.

The lender forecasts that the current account deficit may increase to around 1.5% of GDP in FY24 as the recovery takes hold.

“Assuming sustained sound macroeconomic policy and structural reform implementation, inflation should return to the SBP target and growth continue to strengthen over the medium term,” said the IMF.

Pakistan was nearing a default when the Pakistan Democratic Movement-led government (PDM) was about to end its term last year. However, entering the SBA with the IMF helped the South Asian nation stave off the sovereign default.

The forex reserves held by the State Bank of Pakistan (SBP), as of January 5, stand at $8.1 billion, while the country’s total reserves have reached $13.2 billion after a debt of $66 million was repaid.

With the addition of the latest tranche, Pakistan’s forex reserves will reach a six-month-high — as on July 14, the SBP reserves were around $8.73 billion.

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Dar chairs the CCOP meeting; Blue World’s bid offer of Rs.10 billion is rejected.

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3 days ago

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The Foreign Minister/Deputy Prime Minister chaired the Cabinet Committee on Privatization meeting.

Other committee members who attended the conference included the Federal Secretaries of several Divisions, the Ministers of Finance and Revenue, Industry and Food, Commerce, Power, and Privatization.

The CCOP took the PC Board’s recommendation into consideration and suggested that Blue World’s bid of 10 billion rupees for the sale of 60% of PIACL’s shares be rejected. The bid was rejected by the CCOP, who chose to follow the PC Board’s advice.

The government’s determination to sell out PIACL through government-to-government or privatization was reaffirmed by the CCOP.

The CCOP was pleased with the Aviation Division’s evaluation of PIACL’s sound financial standing.

Additionally, the CCOP established a committee, chaired by the Minister of State for Finance, to assess potential transaction possibilities for the privatization of the Roosevelt Hotel and the appropriate modes of adoption in light of existing legal rules.

Prior to its subsequent meeting, the CCOP also ordered that all difficulties be resolved and an agreement for the selling of services to an international hotel be concluded.

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The KSE-100 Index has surged by 790 points, resulting in an all-time peak for the stock exchange.

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3 days ago

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The benchmark KSE-100 Index increased by 790 points, marking a new all-time high for the Pakistan Stock Exchange (PSX) at 94,982 points.

The record-breaking performance underscores a surge of optimism and investor confidence in the stock market.

As investors responded to favorable economic signals, the market experienced a significant increase of over 500 points in early trading. Later, the KSE-100 Index reached another record level of 94,786 points after adding 594 points to its upward trajectory.

This positive development comes as the State Bank of Pakistan’s (SBP) foreign exchange reserves saw an increase of $84 million, reaching $11.26 billion during the week ending November 8, according to data released by the central bank on Thursday.

This represents an increase of 0.75% from the previous week. In addition, the nation’s total liquid foreign reserves experienced a modest increase, increasing by $33.7 million or 0.21% week-on-week to $15.97 billion.

In contrast, commercial banks’ reserves experienced a decline of $50.3 million or 1.06%, ultimately settling at $4.71 billion.

Furthermore, the economic team of Pakistan has expressed confidence in the discussions with the International Monetary Fund (IMF). Minister of State for Finance Ali Pervaiz Malik, in an exclusive conversation with Samaa TV, claimed talks were moving in a positive direction.

Highlighting improvements in Pakistan’s economic conditions, Malik noted substantial progress over the past six months to a year. He emphasized that Pakistan’s current economic situation has seen significant enhancement, with a reduced current account deficit of only $100 million in the first quarter, a reflection of the government’s strategy to increase remittances and boost exports.

Malik shared that discussions with the IMF are primarily focused on external financing, and while there have been speculations about a potential mini-budget or an increase in the petroleum levy, he clarified that these are currently premature considerations.

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Positive IMF negotiations propel KSE-100 Index above 94,000 points

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4 days ago

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As a result of investors’ optimism about the reported progress in the continuing talks with the International Monetary Fund (IMF), the Pakistan Stock Exchange (PSX) experienced a robust surge.

The benchmark KSE-100 Index of the PSX, which tracks market sentiment, rose 713 points to a new record high of 94,068 points, breaking above the 94,000-point barrier, as the trading session began.

Early in the day, the stock market began its upward trajectory as the KSE-100 Index steadily rose, gaining 574 points to reach 93,932 points. A possible agreement with the International Monetary Fund (IMF) might lead to more fiscal stability and back Pakistan’s economic reforms, which is why investors are so optimistic about the country’s future.

Officials from the Federal Board of Revenue (FBR) informed the International Monetary Fund (IMF) on Wednesday that the government would not be introducing a mini-budget and would instead continue to aim to collect Rs12,970 billion in taxes each year.

In line with continuing discussions with the Fund, FBR sources revealed that petroleum goods will not be subject to the General Sales Tax (GST).

The fact that Pakistan’s tax-to-GDP ratio has increased from 8.8% to 10.3%, a 1.5% gain viewed as a favorable sign of Pakistan’s fiscal policies, has reportedly pleased the IMF, who has voiced satisfaction at Pakistan’s recent economic performance.

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