Karachi: Pakistan foreign exchange reserves have been projected to reach at $12.1 billion by end financial year 2011/12 with imminent pressure on balance of payment after beginning of IMF loans’ repayment.
IMF in its reports on Pakistan’ economy stated on Monday that central bank’s foreign exchange reserves have declined by about $2 billion in the last six months.
The economic performance has weakened and external pressures are mounting. The widening deficit of current account due to lower cotton/textile prices and a sharp slowdown in remittances growth, continued difficulties in attracting external financing.
In 2010-11, the real GDP expanded by 2.4 percent—far below the estimated 7 percent required to absorb the two million new labor market entrants annually—with inflation persistently in double digits.
Unemployment is high when underemployment and unpaid employment are taken into account, while poverty incidence and measures of human development are at worrisome levels. Efforts to boost revenue mobilization were once again frustrated by a lack of political support, and the fiscal deficit widened to 6.6 percent of GDP in 2010/11. Monetary policy has become more accommodative, with the SBP directly or indirectly (through liquidity injections via open market operations) financing fiscal deficits.
On current policies, Pakistan’s near- and medium-term prospects are challenging. Growth would remain too low to absorb the large number of new entrants into the labor force, inflation would remain high, and the external position would weaken further. In 2011/12, real GDP growth is projected at 3.4 percent and average CPI inflation at 12 percent.
In the absence of corrective measures, the fiscal deficit is likely to reach 7 percent of GDP, much higher than the government’s revised budget target of 4.7 percent, IMF forecast.
Moreover, there are considerable downside risks to this already difficult baseline, particularly in the context of an increasingly difficult global environment and concerns about policy weakening ahead of senate elections in 2012 and parliamentary elections in 2013.