With the economic stability that is strengthened despite its fragility, all eyes are now in the first biannual review of the current financing program of the International Monetary Fund of $ 7 billion (IMF).
An IMF mission is expected to arrive here at the end of this month or early March, according to finance minister, Muhammad Aurengzeb; The lender has not yet confirmed the dates.
In response to a question in the informative session of the posterior policy last Monday, the governor of the State Bank of Pakistan (SBP), Jameel Ahmed, expressed the hope that the review will continue as planned. The extended financing program of 37 months consists of six revisions on the life of the rescue, and the release of the next section of approximately $ 1 billion will depend on the success of the performance review.
Most analysts expect Pakistan to meet most of the performance objectives related to, among others, international reserves, the surplus of the primary budget and the net net assets of the SBP. A higher line values analyst said that the government is in “compliance with the majority of IMF’s objectives.” The latest data for some of the criteria, such as cash transfers under Benazir’s income support program, are not yet available.
The country’s economy bends a corner as analysts highlight the positive, although fragile path, towards recovery.
At the same time, some indicative objectives will be lost, such as the fiscal income of the Federal Income Board (FBR) and the collection of taxes under the Tajir Dost scheme. The deficit in FBB’s tax collection has shot RS468B in the first seven months of the current fiscal year, while only a small tax fraction is recovered under the Tajir Dost scheme. The fiscal deficit is expected to not affect the result of the IMF review.
In fact, the country’s economy has traveled a long way from the edge of a breach. A strong drop in the head of the inflation of the consumer price index and the stability of the external account that inspires the confidence in the SBP to cumulatively reduce interest rates by 1,000bps to 12 percent in six consecutive sessions since June Of 2024. In its last politics, the Central Bank Bank took a break from its previous aggressive monetary policy, reducing the rates in 100 bp.
The main driver of speed reduction is the continuous downward trend in inflation, mainly due to a high base effect and a better dynamic on the supply side. However, the bank points out that central inflation remains high, and the governor says that the 1,000bps reduction is expected to reduce the policy rate in the last seven months support economic activity in the coming months.
Although the monetary policy declaration stressed that it is necessary 5-7pc, gave no idea of the bank that stopped the ongoing monetary flexibility cycle to preserve fragile stability.
However, analysts believe that the risks to inflation: global volatile prices of basic products, protectionist policies in the main economies, the moment and the magnitude of the administered energy rates settings, the volatile prices of perishable foods and any fiscal measure Additional to fulfill the objective of FBR, mentioned in the statement. It could force the SBP to break the monetary flexibility cycle, or at least opt for moderation in the rhythm of the speed cuts.
In the light of recent economic developments, the State Bank has reviewed its projections on important macroeconomic indicators for the current fiscal year, saying that the current account is expected to execute a surplus of 0.5pc of GDP, with international reserves that increase to $ 13 billion by increasing remittances and slight growth in exports despite heavy debt payments. This should reduce the government financing requirement (net of the reinvestment/refinancing amount) from $ 11.3 billion to $ 8.7 billion, according to Topline Securities.
He has also reviewed his projections for an average annual inflation to 5.5-7.5pc, or near its target range, from its original estimate of 11.5-13.5pc for this fiscal year. This means that the SBP still has enough space to continue the monetary flexibility cycle as real interest rates are found in 790 PT, much higher than the historical average of 200-300bps, with the inflation of December to 4.1pc . Has maintained its projections for GDP growth at 2.5-3.5pc.
As mentioned above, the country’s economy has folded a corner. This has encouraged the government to devise an economic transformation plan of its own harvest, “Uraan Pakistan”. This initiative aims to achieve 6 PC GDP growth by 2028 through public-private partnerships and improve exports to $ 60 billion.
Many have warned the authorities that they do not press the growth accelerator, despite improving the indicators, without first addressing the structural imbalances facing the economy as the recovery remains fragile. Long -term stability and policy reforms, instead of unsustainable faster growth, should be the priority for the government to avoid another economic crisis. This is exactly the purpose of the IMF program.
Published in Dawn, The Business and Finance Weekly, February 3, 2025