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Pakistan’s caretaker Finance Minister Shamshad Akhtar has said that political instability over the period of time has greatly disrupted the cash-strapped country’s economic growth, which has to be backed by structural reforms.
Addressing the Sustainable Development Conference (SDC) here on Thursday, the minister said macroeconomic stability has become more difficult in the last decade because of delays in structural reforms, protracted actions and exogenous shocks.
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The vulnerability of the economy has increased due to global economic shocks such as the increase in international commodity prices and tighter liquidity conditions, with Pakistan effectively priced out of the international credit markets, the Business Recorder newspaper quoted Akhtar as saying.
“Vulnerability has increased due to the unsustainable debt position… Large fiscal and trade deficits over two decades have weakened the debt position, with the cost of servicing debt rising to 74 per cent of the FBR revenue in FY23,” the minister said.
She added that vulnerability has also increased due to climate shocks. The global warming model predicts that Pakistan’s weather patterns will become even more volatile and extreme in the decades ahead, with an average increase in temperatures by 1.3 per cent to 4.9 per cent by 2090.
“Our fiscal policy is unsustainable not only due to the revenue gaps and unproductive expenditures but it is also unsustainable due to the scale of the climate funding gap,” she said.
The minister said Pakistan was exploring avenues for debt for nature climate swaps with different partners.
She said that after months of hard work, Pakistan has successfully reached a staff-level agreement with the International Monetary Fund (IMF) on the first review of the USD 3 billion bailout.
She said that the successful implementation of comprehensive stabilisation measures including lifting restrictions on the trade and investment flows by removing bans on imports and profit repatriation of dividends by multinational companies, helped revitalise Pakistan’s economy, placing it back on a positive growth trajectory.
“Keeping a watch on our spending and revenues, we have implemented a new State-owned Enterprises (SOE) policy and fast-tracked the privatisation of the loss-making SOEs,” she added.
She said Pakistan has actively started to re-profile the domestic debt, with investors moving to longer tenor instruments, substantially reducing the government’s borrowing cost.
Citing a World Bank report, she said Pakistan has all the requisites of being a major economic player in the region and Asia as the cash-strapped country’s economy could reach USD 2 trillion by 2047 from USD 350 billion in FY23.
“However, this requires macroeconomic stability backed by structural reforms critical to the deep-rooted challenges shackling the productive sectors of the economy,” she added.
The finance minister said the GDP growth rate would hover around 2 to 3 per cent in the ongoing fiscal year. She added that the business and investors’ confidence had been restored.
Pakistan’s economy has been reeling under pressure for the last few years and the country is battling an acute balance of payments crisis and falling foreign exchange reserves.
Pakistan is negotiating with the IMF for the release of a USD 710 million second tranche of a USD 3 billion loan to the cash-strapped country to stabilise its debt-ridden economy.
While approving the USD 3 billion loan in July this year, the Washington-based global lender had also released the first tranche of USD 1.2 billion.
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