Financial adjustment needed in Pakistan's economy: IMF

ISLAMABAD: International Monetary Fund (IMF) has highlighted the requirement of a financial adjustment in Pakistan’ economy and predicted the rise in economic growth after the current fiscal year, the institution said in a statement.

The IMF statement said that Pakistan has recently commenced implementing the financial plan of the institution and its economy needed a financial adjustment. It said that the fiscal deficit had been witnessed more than the expectation in the previous year.

The institution admitted that the visible hike was seen in tax collection, however, it is likely for a decrease in economic growth. The economic growth rate was previously recorded at 3.3 per cent while it is expected to stand at 2.4 per cent this year. The pace of growth is likely to go up after the current financial year.

Read: US-China tariffs drag global growth to lowest in a decade: IMF

The investments in the local currency assets exhibited the confidence of foreign financers, however, the risks of certain impacts on the economies of Pakistan and India could not be rejected due to the international trade war.

US-China tariffs

It is pertinent to mention here that the International Monetary Fund (IMF) had already warned on Tuesday that the US-China trade war will cut 2019 global growth to its slowest pace since the 2008-2009 financial crisis.

The IMF said its latest World Economic Outlook projections here show 2019 GDP growth at 3.0%, down from 3.2% in a July forecast, largely due to increasing fallout from global trade friction.

The forecasts set a gloomy backdrop for the IMF and World Bank annual meetings this week in Washington, the first for the Fund’s new managing director, Kristalina Georgieva. She is inheriting a range of problems, from stagnating trade to unrest in Ecuador and political backlash in Argentina over IMF-mandated austerity programs.

Read: Pakistan’s economic growth projected at 2.4 per cent in FY2019-20: IMF

The global crisis lender said that by 2020, announced tariffs would reduce global economic output by 0.8%. That translates to a loss of about $700 billion — the equivalent of making Switzerland’s economy disappear.

The growth downgrade assumes that all announced U.S. tariffs on Chinese goods are put in place, along with Chinese retaliation. These include a 5 percentage point U.S. duty increase on Chinese goods originally scheduled for Tuesday and 10% tariffs on $156 billion in Chinese goods scheduled for Dec. 15.

For 2020, the Fund said global growth was set to pick up to 3.4% due to expectations of better performances in Brazil, Mexico, Russia, Saudi Arabia and Turkey. But this forecast was a tenth of a point lower than in July and was vulnerable to downside risks, including worse trade tensions, Brexit-related disruptions and an abrupt aversion to risk in financial markets.

IMF technical team in Pakistan

A technical team of the International Monetary Fund (IMF) had arrived in Pakistan to hold dialogues with the economic officials for the payment of the next tranche of $6 billion under the extended loan programme.

Sources told ARY News that the technical team will stay for two weeks in Pakistan, whereas, the first session of the financial talks was held with the economic team.

Read: US-China tariffs drag global growth to lowest in a decade: IMF

The recent visit of the IMF officials was made for the payment of next tranche from the international financial body likely to be dispatched in 2020. Sources said that the visiting team initiated dialogues with Pakistan officials over the tax system.

The technical team urged the Pakistani officials to eliminate exemptions being given on income and sales tax to increase the collections. Sources revealed that the technical team will also review the tax exemption which had been given during the tenures of Pakistan Muslim League Nawaz (PML-N) and Pakistan People’s Party (PPP).

It may be noted here that Pakistan had received $1 billion from the International Monetary Fund (IMF) as the first tranche of a bailout package for balance of payment support on July 10.