IMF says Pakistan needs to reduce its current account deficit

DUBAI: The International Monetary Fund (IMF) has urged Pakistan to bring its current account deficit under control, an official said, as the country's new government seeks an increase in the size and duration of the current programme.

Pakistan's current account deficit ballooned to $13.2 billion in the nine months of its fiscal year from a gap of $275 million a year earlier on the back of soaring oil import costs, data shows.

Ratings agency Moody's expects the deficit to widen to 5-6% of gross domestic product in the current fiscal year ending June 30, up from its earlier 4% projection, putting greater pressure on Pakistan's foreign exchange reserves that have fallen to a critical level of under $11 billion.

Jihad Azour, director of IMF's Middle East and Central Asia Department, said the fund's team will assess the policy priorities of the new government and the economic impact in the context of the war in Ukraine.

"But of course, we have been over the last few months highlighting the importance of maintaining the current account situation under control … reduce the current account deficit."

He did not elaborate on the policy actions, but the IMF has said earlier a continued commitment to a market-determined exchange rate and a prudent macroeconomic policy mix will help reduce the deficit. A market-determined exchange rate has already pushed Pakistan's rupee to new lows, putting the currency in the range of 185-186 against the US dollar. On Wednesday, the rupee closed at 185.45 in the inter-bank market.

A new Pakistani government that took over this month from ousted prime minister Imran Khan faces enormous economic challenges, predicting the fiscal deficit will exceed 10% of GDP at the end of the current financial year.

Finance Minister Miftah Ismail, who was in Washington for talks with the lender, said on Monday Pakistan has sought an increase in the size and duration of its $6 billion IMF programme.

When asked whether Pakistan will need to take certain steps first, such as cutting oil and gas subsidies, Azour said these will be discussed during the visit.

"We'll discuss these issues and therefore I will not pre-empt those discussions," he said.

Reports indicate Pakistan has agreed to roll back its fuel subsidy that was offered by the previous administration. While Ismail ruled out an "immediate" increase in prices, he reiterated that keeping the subsidy intact for a longer period was difficult.