Downside risks for the economy remain exceptionally high, the International Monetary Fund (IMF) said on Friday in its staff report ahead of the government’s talks with the fund on a longer term progamme.
An IMF mission is expected to visit the country this month to discuss a new programme, ahead of the government beginning its annual budget-making process for the next financial year.
“Downside risks remain exceptionally high. While the new government has indicated its intention to continue the SBAs (standby arrangement) policies, political uncertainty remains significant,” said the fund in its staff report following the second and final review under the SBA.
The fund added that political complexities and high cost of living could weigh on policy, adding that policy slippages, together with lower external financing, could undermine the narrow path to debt sustainability and place pressure on the exchange rate.
The IMF also said higher commodity prices and disruptions to shipping, or tighter global financial conditions, would also adversely affect external stability for the cash-strapped nation.
The fund stressed the need for timely post-programme external financing disbursements.
Last month, the country completed a short-term $3 billion programme, which helped stave off sovereign default, but Prime Minister Shehbaz Sharif has stressed the need for a fresh, longer term programme.
Pakistan narrowly averted default last summer and the economy has stabilised after the completion of the last IMF programme with inflation coming down to around 17 per cent in April from a record high 38pc last May.
The country is still dealing with a high fiscal shortfall and while the external account deficit has been controlled through import control mechanisms, it has come at the expense of stagnating growth, which is expected to be around 2pc this year compared to negative growth last year.
Pakistan is expected to seek at least $6bn and request additional financing from the Fund under the Resilience and Sustainability Trust.
