ISLAMABAD: Pakistan’s GDP growth is unlikely to cross 3 percent in the next fiscal year (2022-23) due to contractionary monetary and fiscal policies under the International Monetary Fund (IMF) programme.
While talking to Business Recorder, former Finance Minister Dr Hafeez Pasha said the government would be asked by the IMF to reduce the PSDP size for next fiscal year and increase discount rate, which would have a direct impact on the growth prospects for next fiscal year. He further stated that increase in Public Sector Development Programme (PSDP) spending is one of the two prerequisites for GDP growth as a study revealed that one percent increase in PSDP as a percentage of GDP contributes 1.7 percent to the growth.
Hafeez Pasha was skeptical about higher spending for the PSDP especially if the IMF Extended Fund Facility (EFF) is revived and stated that in the coming fiscal year the IMF would like the government to limit federal component of the PSDP at Rs 600 billion, which would be less than one percent of the GDP. Thus one percent PSDP spending means 1.6 percent GDP growth.
He said that next steps would be required to squeeze imports and to achieve this, the State Bank of Pakistan (SBP) has to further increase policy rate, which would have negative impact on private investment. A 100 basis point increase in policy rate would slash private investment by 1. 6 percent, he added.
Pasha further contended that slashing PSDP as well as squeezing imports and reducing private investment would contract GDP growth.
An official of finance ministry on condition of strict anonymity said that for Pakistan it is critical to remain in the Fund programme at this crucial economic juncture when the country’s foreign exchange reserves are no more than a month and a half of imports.
Copyright Business Recorder, 2022