February 14, 2020 / 4:54 PM / 12 days ago

IMF says Pakistan making progress under deal, expects inflation to ease

ISLAMABAD (Reuters) - The International Monetary Fund said on Friday that Pakistan was making progress on economic reforms, and said inflation would start to ease after a rapid acceleration.

An IMF mission has just wrapped up a 10-day visit to Pakistan as it reviews the future course of the country’s $6 billion financial aid program.

The Fund agreed to a three-year rescue package last year — its 13th bailout program for Pakistan since the late 1980s — as the South Asian country of 208 million people wrestles with a balance-of-payments crisis.

“The mission and the authorities made significant progress in the discussions on policies and reforms,” said Ernesto Ramirez Rigo, the head of the mission, added without elaborating on what possible reforms were discussed.

“Inflation should start to see a declining trend as the pass-through of exchange rate depreciation has been absorbed and supply-side constraints appear to be temporary,” he added.

Pakistan’s inflation rose to 14.6% in January, its highest in more than a decade, putting pressure on households struggling to keep up with rising goods prices along with new tariffs on power aimed at lifting government revenues.

Even after those measures and cutting its revenue collection target, Pakistan is facing a shortfall of 387 billion rupees ($2.51 billion).

That has left some economists and former finance officials questioning whether the government would need to introduce new taxes or ask the IMF to waive some of its programme requirements.

The IMF noted however that the country’s revenue growth from tax had been “strong” as the government had recorded a primary surplus of 0.7% of its gross domestic product.

Reporting by Charlotte Greenfield in Islamabad; Editing by Catherine Evans

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