Downside risks to the economy remain extremely high, the International Monetary Fund (IMF) said in a staff report on Friday, ahead of the government’s talks with the fund on a longer-term plan.
An International Monetary Fund mission is expected to visit Pakistan this month to discuss a new program ahead of the start of Islamabad’s annual budgeting process for the next fiscal year.
“Downside risks remain extremely high. While the new administration has indicated its intention to continue SBA policies, policy uncertainty remains significant,” the fund said in its staff report after the second and final review under the standby agreement ( SBA).
The fund added that political complexities and high living costs could weigh on policy, adding that policy slippages, along with lower external financing, could undermine the narrow path to debt sustainability and put pressure on exchange rate.
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The IMF also said higher commodity prices and shipping disruptions, or tighter global financial conditions, would also negatively impact external stability for the cash-strapped nation.
The fund emphasized the need for timely disbursements of external financing after the program.
Pakistan last month completed a short-term $3 billion program that helped avert a sovereign default, but Prime Minister Shehbaz Sharif’s government has stressed the need for a new, longer-term program.
And there were certainly strong suggestions in today’s minutes that the first cut by the ECB will take place in June.
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Pakistan narrowly avoided default last summer and its $350 billion economy has stabilized since the end of the latest IMF program, with inflation easing to around 17% in April from a record high of 38% last May.
It still faces a high fiscal deficit and while it has controlled its external balance deficit through import control mechanisms, it has come at the expense of stagnant growth, which is expected to be around 2% this year compared to negative growth last year.
Pakistan is expected to request at least $6 billion and request additional funding from the Fund under the Resilience and Sustainability Trust.
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