ISLAMABAD: The International Monetary Fund (IMF) has stated that the reliance on administrative measures to manage imports since May 2022 and the tightly controlled exchange rate since September 2022 have caused significant damage to growth and exacerbated external pressures by dissuading inflows, especially remittances.
In a staff level report prepared by a staff team for Executive Board following discussion with Pakistani authorities on economic developments and policies underpinning the IMF arrangement under the Stand-By Arrangement, the IMF pointed out that these interventions have undermined public trust in the exchange rate system and, going forward, it will be necessary to ensure that the exchange rate will be market-determined, allowed to act as a shock absorber, and free from formal or informal guidance or restrictions.
Staff also recommended unwinding the January 2022 shortening of the period for repatriation of export proceeds as macroeconomic and BOP stability is restored.
The new SBA aims to rebuild confidence and entrench stability. To reduce near-term uncertainty and risks, the new programme focuses on containing the budget and external deficits, bringing inflation under control, restoring the proper functioning of the exchange market, rebuilding reserve buffers, and advancing some critical reform efforts.
While the authorities have taken actions in these areas, these need to be sustained in the programme period if Pakistan is to regain stability and remain sustainable. Success will hinge on strong and sustained ownership, firm implementation, and significant external financial support, and be underpinned by programme monitoring.
Policies and monitoring should thus support external financing, with restored FX market functioning and stronger policies supporting a recovery in remittances in the fiscal year 2024 and other inflows (including FDI) thereafter.
Copyright Business Recorder, 2023
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