Pakistans economy continues to perform well

Appreciating Pakistan’s sustained high
growth, the International Monetary Fund has noted that the South Asian
country’s economy continues to perform well despite recent political
developments in the transition  period as well as turbulence in the
international capital markets.

The
global financial institution in its latest report based on the IMF
executive directors’ assessment welcomed Pakistan’s monetary policy
tightening that has occurred since midyear as it also observed that a
main challenge will be maintaining economic growth while reducing
inflation and the current account deficit.

“Executive
Directors welcomed that Pakistan’s economy continued to perform
strongly in 2006/07. Real GDP growth increased, the international
reserve position strengthened, and debt ratios declined.  

The
favorable economic performance and structural reforms to improve the
business climate have spurred capital inflows in recent years,” it
reported on this week’s executive directors’ conclusions for the year
2007.

“The
economy has shown considerable resilience to recent domestic political
uncertainties and the turbulence in international capital markets, with
provisional data for activity in large-scale manufacturing showing
continued strong growth in the first quarter of 2007/08,” the directors
said.

The
assessment came after the Executive Board of the International Monetary
Fund (IMF) concluded the 2007 Article IV consultation with Pakistan. 
Under Article IV of the IMF’s Articles of Agreement, t he IMF holds
bilateral discussions with members, usually every year.

Pakistan
has experienced a remarkable turnaround in its economic performance
since 2001/02. Sound macro-economic  management and wide-ranging
structural reforms have contributed to high real GDP growth, a
reduction in the debt burden, and an improved business climate, it
said.

“Adherence
to pro-poor policies has helped lower poverty rates,” it acknowledged,
while briefly recounting the country’s performance in recent years.

Increasingly, Foreign Direct Investment (FDI) and portfolio flows have become an important source of external financing.

“Economic
developments during the fiscal year ending in June 2007 remained
favorable. Real GDP growth increased to 7 percent, with a recovery in
agriculture and a strong performance of large-scale manufacturing and
services; the debt ratio continued to decline; and the international
reserves position strengthened further.”

At
the same time, the directors referred to challenges including
containing inflation, looking after the external current account
deficit and said Pakistan’s external financing needs remain large. They
said continued vigilance is required to reduce vulnerabilities and
maintain investor confidence.

The
economic program for 2007/08 envisages real GDP growth of 7.2 percent,
the directors noted and the budget deficit target has been set at 4
percent of GDP.

Looking
beyond 2007/08, the IMF directors stressed that further fiscal
consolidation will be required to reduce inflation and the external
current account deficit while lessening pressures on real interest
rates.

They supported a broadening of the tax base and the use of public-private partnerships in infrastructure development.

There
was also agreement that the real effective exchange rate is broadly in
line with Pakistan’s economic fundamentals as they underscored that
fiscal adjustment accompanied by higher levels of investment and
vigorous implementation of structural reforms constitute the main
avenues to improve external competitiveness. The directors encouraged
implementation of structural reforms in order to sustain growth and
poverty reduction.

Pakistan
is currently passing through political transition as it heads toward
parliamentary polls on January 8, 2008. President Pervez Musharraf,
under whose eighth-year tenure the country witnessed a continued
economic upturn, has taken oath as civilian President, restored the
constitutional rule and pledged fair and free polls as the country’s
stock exchange and business community have responded positively to
these steps and remain upbeat about future prospects.

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on Dec 23 2007. Filed under Business. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry