News & Broadcast - Pakistan Economic Update

GDP Growth

May 6, 2009 - GDP growth in Pakistan’s export markets is likely to continue to fall sharply in 2009, which would translate into a starker-than projected decline of Pakistan’s export growth in the medium term, put pressure on Pakistan’s external balances and complicate growth recovery.

Risks to the domestic financial sector may increase, and it seems almost certain that even the downward-revised revenue target will not be met in this fiscal year. Stringent implementation of the government’s IMF-supported economic stabilization program will be critical to success, and timely responses of fiscal and monetary authorities to emerging risks will be essential to ensure it remains on track.

Macroeconomic Imbalances

Pakistan’s macroeconomic imbalances are rooted in the sharp rise in international prices of oil and food in 2007/08, combined with policy inaction and internal political turmoil. To avoid a balance of payments crisis and default on foreign debt payments, the authorities developed the stabilization program, which was supported by the IMF through a 23-month Stand-By Arrangement (SBA) in November 2008.

The program includes a medium-term macroeconomic framework with fiscal and monetary tightening to bring down inflation and reduce the external current account deficit to sustainable levels. At the first quarterly review of the SBA in February 2009, the stabilization program remained on track.

International Commodity and Oil Prices

The rapid decline in international commodity and oil prices since August 2008 has reduced the risks, facilitated improvement in the external position and the achievement of targets. However, given the global economic crisis, the medium-term outlook presents significant downside risks.

The sharp deterioration in the global economic and financial outlook poses significant risks to exports, remittances and external financing. Even though projections in these areas as well as forecasts about the speed of real economy recovery were significantly moderated during the first program review in February 2009, they may still turn out to be optimistic.

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Resources

Pakistan Economic Update - May 2009

GDP Growth

Macroeconomic Imbalances

International Commodity and Oil Prices

Additional Resources