The Economist Intelligence Unit (EIU) has projected Pakistan’s economy to expand by an annual average of 2.9% in 2018/19 2022/23, compared with 5.4% previously.
The advisory issued by the EIU comes amidst Pakistan’s ongoing negotiations with the International Monetary Fund (IMF) which commenced on November 7th and are expected to conclude by November 20th.
EIU stated political considerations, especially of the US may complicate the negotiations, but it expected Pakistan to clinch a $7 billion IMF bailout package by early-2019.
It added the government would likely carry out structural reforms at the IMF’s demand, however, their extent will be limited on economy.
Consequently, due to an anticipated reduction on public spending, some projects under the China-Pakistan Economic Corridor (CPEC) would progress more slowly and isn’t likely to impact bilateral ties with China, said EIU.
On the external sector woes, EIU said it anticipated an imminent IMF programme to be amplified with other bilateral assistance and it would be the country’s 13th bailout since the late 1980’s.
Moreover, EIU believed the PTI-led government would find it difficult to implement its populist agenda of expanding social welfare provision, which includes promises of low-cost housing and new jobs.
However, it added the Washington-based lender’s core demand would be fiscal consolidation, akin to the ones made in previous bailouts obtained by Pakistan.
Also, it projected the governments move to announce a major decrease in planned development spending for FY19 and further cuts would likely bring the fiscal deficit down.
It said aside from the recent increases in gas and electricity tariffs, the IMF is likely to demand further rises to remove price distortions and manage growing arrears in the energy sector, which is dominated by public enterprises.
Alongside these expenditure reductions, the EIU projects these measures would help reduce the federal government’s fiscal deficit from 5.4% of GDP in FY18 to 4.9% in current FY19.
