IMF confirms pakistan economy in crisis

Discussion in 'Pakistan' started by Blackwater, Feb 11, 2012.

  1. Blackwater

    Blackwater Veteran Member Veteran Member

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    SLAMABAD: The International Monetary Fund’s (IMF) staff appraisal has suggested Pakistan’s economic managers to prepare and implement contingency plan to enable the economy to meet any further adverse shocks. :thumb::thumb::thumb::wave::wave::lol::lol:

    The IMF Staff Report for the 2011 Article IV Consultation and Proposal for Post-Programme Monitoring was prepared by a staff team of the IMF, following discussions that ended on November 19, 2011, with the officials of Pakistan on economic developments and policies. Based on information available at the time of these discussions, the staff report was completed on January 23, 2012.

    The IMF staff appraisal pointed out that the risks to the economic outlook are tilted to the downside and contingency planning is needed. The recent deterioration in Pakistan’s external position highlights the macroeconomic risks, with looming pressures on the balance of payments from lower export prices, weaker growth in remittances and repayments to the fund. Policy space to deal with any further adverse shocks is limited.

    In addition to security problems and the risk of policy slippage in an election year, the government’s high rollover needs, lower-than-expected external financial inflows, negative spillovers from the turmoil in Europe, and the high level of non-performing loans (NPLs) in the banking sector all represent significant risks to economic and financial stability. In view of the risks, the authorities should prepare and implement a plan to mitigate vulnerabilities, it added.

    Pakistan’s fundamental problems are well known. Governance and institutional problems undermine the country’s fiscal position. The complexity of fiscal management has recently been compounded by fiscal decentralisation.

    Unpredictable and widespread power outages are stifling growth. Power sector subsidies, which are poorly targeted, have squeezed out social spending. Large public sector enterprises with soft budget constraints continue to sap fiscal resources, as do the government’s commodity operations. Meanwhile, inter-enterprise arrears in the energy sector (circular debt) undermine budget discipline and are clogging up the financial system. Financial intermediation to the private sector has declined to low levels, with the banking system supplying more credit to the public than to the private sector.

    The solutions to these problems, however, require politically difficult decisions. The authorities recognise that Pakistan’s macroeconomic problems have microeconomic and institutional causes that need to be addressed to achieve higher, inclusive growth. A fundamental break with the past is needed, and this will require a national consensus on a strategy to revive economic growth, along the lines of the NGS.

    Consolidation of the public finances is the starting point in any effort to set the economy on the right course. Staff welcomes the authorities’ efforts to remove tax exemptions and zero ratings, including the sensitive agriculture sector. However, a more sizeable increase in tax revenue is needed. Measures could include a reformed general sales tax, a broader income tax regime, introducing a property tax, reintroducing the Special Excise Duty and income tax surcharge, or raising the sales tax rate. On the spending side, it is critical to tighten non-wage current spending, especially by reducing untargeted subsidies, while protecting social spending.

    Loss-making public sector enterprises need to be restructured, and commodity operations should be scaled back and phased out. Given substantial rollover risks of domestic government debt, carefully managing the government’s growing debt load through extending maturities is also a priority. In addition, some of the rules of the game for fiscal decentralisation, for instance those relating to provincial borrowing, need to be clarified, and the incentives of the provinces to raise their own revenue should be better aligned with requirements of sound public finances.

    Monetary and exchange rate policy need to contain inflation and external risks in a better manner. At its November 2011 policy meeting, the State Bank rightly decided to keep its policy rate unchanged. Any further contemplation of monetary policy loosening should await clearer disinflation signals, and the SBP should be ready to tighten policy if inflation or external pressure increases. Greater exchange rate flexibility is also called for to facilitate external adjustment and to safeguard foreign reserves, which are projected to decline. Based on standard analysis, staff considers the rupee to be somewhat overvalued relative to fundamentals. However, declining reserves, strains in global financial markets, and commodity price variability suggest there is considerable uncertainty about the extent of overvaluation.

    Reducing inflation will require comprehensive fiscal reforms and greater central bank independence. Fiscal consolidation would free monetary policy to pursue inflation objectives. A more independent central bank would be better able to resist pressures to finance the government deficit, either directly or indirectly. And lower inflation would help the poor.

    Although capital adequacy ratios remain strong, increasing NPLs present risks to financial stability as do high concentrations of bank assets in government securities. Action is needed to address the NPLs and bank supervision should be strengthened. Remaining problem of banks need to be resolved without delay. Closely monitoring vulnerabilities should remain a key priority, as should addressing financial governance problems in some institutions. In addition, establishing an explicit deposit insurance mechanism would boost confidence in the banking sector. Finally, the sector would benefit from a simplification of the collateral recovery process. A stronger financial sector, coupled with less government borrowing, would provide the resources for needed investment by the private sector, it concluded


    Daily Times - Leading News Resource of Pakistan
     
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  3. sayareakd

    sayareakd Moderator Moderator

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    i dont think the need any help in economy they just announced to make nuke submarine in 5 years and it has worlds fastest nuclear weapons making programme with good military budget.
     
  4. Tshering22

    Tshering22 Sikkimese Saber Senior Member

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    Yeah right... make nuke submarines in 5 years. It took us 2 decades to understand its technology and you think they're going to make something like that in 5 years with zero experience in even automobile manufacturing, forget making warships and submarines.

    Even Chinese cannot sell them the nuke subs because:

    - They don't give free donations.
    - It costs a bomb to build one.
    - China is bound not to sell by the same treaty Russia cannot sell us the Nerpa.
    - Pakistan's economy would go wasted ... sorry, I meant whatever is left out of their economy to maintain a fleet.
    - Where is Pakistan going to operate a nuke sub? Their sea is negligible. :lol:
     

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