Spring Meetings

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OVERVIEW

In mid-2023, Pakistan faced significant economic challenges, including due the devastating floods of the previous year. Since then, economic stability has been restored through careful policy-making. However, challenges remain, such as a narrow tax base, elevated spending pressures for social and development needs and building climate resilience, as well as low productivity and weak growth. MCD Director Jihad Azour will be joined by Pakistan’s Finance Minister Muhammad Aurangzeb to discuss the government’s ambitious policy and reform agenda and the path to sustainable growth.

REPORT

Key Points:

• The new IMF program builds on the successful completion of the previous short program which helped stabilize the economy. Pakistan is moving in the right direction with all key macroeconomic variables improving.  However, the challenge now, under a new longer IMF arrangement, is to move from stability to growth and for that addressing structural and fiscal weaknesses, both on revenue and expenditure sides, remain critical. The authorities are determined to break the boom bust cycle and bring the country on a path of sustainable growth.
• Reforms to transform the economy.  To achieve the desired growth path, Pakistan must shift from its heavy reliance on imports towards an export-oriented approach, including through attracting FDI. For this to happen, the public sector needs to create an enabling environment for the private sector, but the private sector also needs to step up to drive productivity and stop relying on state protection. An important component, both to improve the fiscal position and boost Pakistan’s competitiveness, will be to address Pakistan’s energy sector weaknesses.
• How can the IMF support Pakistan’s transformation: Maintaining a consultative approach with the Fund and its help in coordinating concessional finance, including with bilateral partners, has been invaluable for Pakistan. However, the IMF, along with other multilateral partners, could also play a crucial role in addressing the country’s long-term issues such as climate change, population growth, and child stunting.

Quotes:

“I've consistently said this...that this time is different because as a country, our hand has been forced. If we don't move towards getting our tax at a sustainable level, which essentially means getting under taxed and untaxed segments back into the [tax] net, whether it is real estate or agriculture or retail sector…to ensure compliance so that the theft or corruption has to go. Otherwise, we will keep on going to the same thing for more.” Mr. Muhammad Aurangzeb

"When I look at Pakistan, we have existential issues which is around climate change, population growth and child stunting… This is not about the next few weeks or months or years, this is the future of the country… That’s where the Fund in conjunction with other MDBs has a real opportunity to play a much larger role in terms of the mandate in addressing these issues, certainly for developing economies." Mr. Muhammad Aurangzeb

Contributor: Zahir Sakhi

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