Bloomberg, By Khalid Qayum
May 12 (Bloomberg) -- The International Monetary Fund, which approved a $7.6 billion loan to Pakistan in November, has agreed to ease the country’s budget-deficit target to help boost economic growth.
“The slowing economy, additional donor support, and the need to protect priority expenditures call for a relaxation of the fiscal deficit target for 2009-10,” the IMF said in a statement yesterday. An increase in the target to 4.6 percent of gross domestic product from 3.4 percent “will provide fiscal space and boost growth,” the Washington-based lender said.
Pakistan’s economy has deteriorated in the past two years amid the highest interest rates in Asia and the nation’s fight against Taliban militants, which the United Nations says has forced one million people to flee their homes.
The government predicts the economy will expand 2.5 percent this fiscal year, the slowest pace in eight years, compared with annual average growth of 6.8 percent in the past five years.
The IMF said any further cuts in the central bank’s key interest rate “will await a significant decline in core inflation.” The lender also called for increasing the country’s tax-to-GDP ratio.
State Bank of Pakistan last month cut its benchmark lending rate by one percentage point to 14 percent to slow inflation.
“A weak growth outlook should prompt” the central bank to lower its key rate by a further three percentage points by the end of December, according to a report by Muzzammil Aslam, an economist at JS Global Capital Ltd. in Karachi.
“The worst has been reached and economic growth woes will ease from” the next financial year, supported by financial aid pledged by the U.S., the IMF and Friends of Democratic Pakistan group, Aslam said in the report released today in Karachi.
Pakistan’s rupee plunged 22 percent in 2008, the benchmark stock index fell 58 percent and the balance-of-payments deficit widened to a record.
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