IMF welcomes exchange rate flexibility by SBP


ISLAMABAD: International Monetary Fund (IMF) has welcomed exchange rate adjustment by State Bank of Pakistan (SBP) and said further exchange rate flexibility will be important in the period ahead.
In a statement issued on Thursday, the IMF said that the move by the SBP to allow adjustment of the exchange rate in recent days is welcome. “Continued exchange rate flexibility in the period ahead will be important to facilitate external adjustment in support of exports and economic growth,” the IMF said. Alongside, fiscal discipline and an adequately tight monetary policy stance are needed to reverse the widening of external imbalances, it added.
An International Monetary Fund (IMF) staff mission, led by Harald Finger, visited Islamabad during December 5-14, 2017 to conduct discussions on the first post-program monitoring discussions since the end of Pakistan’s Extended Fund Arrangement (EFF) in September 2016.
The statement said that Pakistan’s growth momentum has continued to be favorable. “We expect GDP growth at 5.6 percent this year, supported by improved security conditions, energy supply, infrastructure investment and agriculture,” the IMF said.
The IMF statement said that strengthening the economy’s resilience will be important to maintain Pakistan’s favorable growth momentum and ensure sustainable private investment and job creation in the medium term.
While economic growth has been accelerating and inflation remains subdued, Pakistan is facing important near-term economic challenges. Surging imports have led to a decline in international reserves despite higher external financing. The increase in the fiscal deficit last year has added to these trends. Intercompany arrears in the power sector continue to accumulate and need to be addressed decisively.
While the authorities have taken steps to address these challenges, greater efforts are required to prevent a further build-up of vulnerabilities and preserve Pakistan’s hard-won macroeconomic stability.
A strong reform effort is needed to maintain external stability, ensure debt sustainability, and support higher and more inclusive growth in the medium term. This includes pursuing medium-term fiscal consolidation driven by accelerated efforts to broaden the tax base, strengthening the monetary policy framework and autonomy of the SBP, careful phasing in of new external liabilities to contain external stability risks, eliminating the losses of public sector enterprises, improving the business climate, and continued strengthening of the financial sector.
In parallel, continuing to strengthen mechanisms for protecting the most vulnerable will be critical to support inclusive growth. In this context, continued expansion of the Benazir Income Support Program will be important.