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ISLAMABAD: The International Monetary Fund (IMF) has pointed out that Pakistan remains vulnerable to possible flare-ups of the pandemic, tighter international financial conditions, a rise in geopolitical tensions, as well as delayed implementation of structural reforms.

The Fund in its Staff Report prepared for the Executive Board’s consideration on February 2, 2022 stated that Pakistani economy has continued to recover despite the challenges from the Covid-19 pandemic, adding that imbalances have widened and risks remain elevated.

Downside risks to the outlook and programme continue to dominate. The authorities and staff agree that these fall under five broad groups. First, with still low vaccination coverage, Pakistan remains vulnerable to a worsening of the pandemic trajectory.

The authorities expect that outbreaks would still have a smaller domestic economic impact than in the past, as they plan to favor localized restrictions with limited scope over strict lockdowns. They remain concerned though about high global uncertainty around the pandemic, which affects the prospects for global growth, trade, and remittances.

Second, policy slippages remain a risk, as has also become more visible in recent months, amplified by weak capacity and powerful vested interests. Socio-political pressures could also weigh on policy and reform implementation, especially with the next general election expected in mid-2023, while the absence of a majority in the upper house may hinder the adoption of legislation critical to the programme.

All this could affect policy decisions and undermine the programme’s fiscal adjustment strategy, in turn jeopardizing debt sustainability (the DSA confirms that public debt remains sustainable with strong policies under the baseline, but also points to risks from policy slippages and contingent liabilities).

Third, further delays on structural reforms, especially those related to governance and the authorities’ Anti-Money Laundering/ Combating the Financing of Terrorism (AML/CFT) action plan with the Financial Action Task Force (FATF), could hamper external financing and investment and thus limit the economic recovery.

Fourth, geopolitical tensions (especially related to Afghanistan) could cause disorderly migration, worsen security conditions, and generate higher volatility in basic food prices (if supply is disrupted) and the exchange rate.

Apart from direct spillovers to Pakistan, the tensions could cause an adverse shift in in investor sentiment and affect external financing.

Finally, climate change risks are mounting, including a tendency for more frequent climate-related disasters.

Copyright Business Recorder, 2022

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