IMF Report about Pakistan

A NEW International Monetary Fund report on the Middle East and Central Asia has painted a bleak picture of Pakistan`s economic outlook. It forecasts real GDP growth of just 2.6 per cent in FY2012 compared to Pakistan`s Annual Plan target of 4.2 per cent, inflation of nearly 14 per cent compared to the government`s own target of 12 per cent and a fiscal deficit of 6.5 per cent.

The report mainly discusses various global and regional factors for the softness in the region`s economies, including the continuing weakness of advanced economies and its effects on external demand. But it also points out Pakistan`s particular challenges: floods, urban violence, massive subsidies meant to absorb the impact of rising food and fuel prices, a poor business environment, unequal growth that leaves out those at the bottom of the economic ladder, an inefficient labour market and increasing domestic government borrowing that is squeezing the availability of credit to the private sector.

Many of the prescriptions the report suggests are not new, and by nowshould be obvious to any observer of the Pakistani economy. But they drive home the fact that the solutions are known, and that what is missing is the political will to implement them. Untargeted subsidies are singled out as being one of the main contributors to fiscal imbalances. The report claims that from the last quarter of2010 to the second quarter of 2011, none of the increase in international diesel prices, for example, was passed on to Pakistani consumers. The recommendation is to replace these with targeted social safety nets and to spend the savings on infrastructure, health and education.

This is part of an overall observation that Pakistan`s politicians and economic planners would do well to heed: growth that is not inclusive will not pay off in the long run.

Another aspect that has been stressed is reforming labour markets and the business environment, especially in light of the growing number of young people. But without enforcing legal frameworks, curbing corruption, educating the workforce and better governance, such reform will remain out of reach.