IMF warns Pakistan's external position may weaken as imports rise
The International Monetary Fund has warned that Pakistan's external financial position may weaken over the medium term as imports rise and remittances moderate, in its Middle East and Central Asia regional report released on Thursday. The fund contrasted Pakistan with Egypt, Jordan and Morocco, which it expects to strengthen on lower commodity prices and export diversification.
The assessment comes days after the IMF reached a staff-level agreement on the $1 billion fifth tranche of Pakistan's loan programme, subject to prior actions. The fund projects a current account deficit of 1% of GDP, around $4.5 billion, well above official estimates of about $2.5 billion, and puts gross financing needs at 22% to 25% of GDP, above peer countries. It also flags banks' 63% exposure to public debt as unusually deep by emerging-market standards.
On policy, the IMF said exchange rate flexibility can help preserve reserves and facilitate external adjustment but may raise inflation through higher import prices. Islamabad has resisted advice to let the rupee depreciate, citing inflation and little expected gain for exports. The rupee appreciated by one paisa to Rs276.85 to the dollar on Thursday.
The fund said countries should stand ready to tighten monetary policy where inflation is above target and the stance appears accommodative, naming Pakistan and the Kyrgyz Republic as the clearest cases. Its report lands days before the Monetary Policy Committee meeting, with the policy rate at 11.5%. The IMF projects inflation at 9.9% in Pakistan, 1.5 percentage points above its previous forecast, after 11.1% year on year in August.
The IMF kept Pakistan's growth forecast at 3.5%, below the official 4% target, which authorities sought to defend during review talks. It also advised supervisors to monitor sovereign-bank linkages where public debt is elevated and banks hold large stocks of government securities, citing Egypt, Pakistan and Tunisia.
