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Risks of macroeconomic imbalances

According to the latest report of the World Bank entitled ‘South Asia Economic Focus Spring 2018’, many short-term measures are required to streamline external and domestic imbalances and ensure macroeconomic stability. However, implementation of medium-term reforms is also necessary to control widening macroeconomic imbalances and allow the economy to move at sustainable growth rate. As the general elections are near, it will limit the scope of interim set up to take any decision on the policy adjustments, lower the rupee value or take drastic measures to maintain fiscal consolidation. The mandate of the current government is also going to end in a few weeks and it has lost the opportunity to reform the aged old tax system and take decisive steps to meet the challenges of competitiveness. The country is already facing balance of payments problem and the current level of foreign exchange reserves has reached a vulnerable point. The international donor agencies had time and again pointed out need for a comprehensive strategy to lower the cost of doing business and improving productivity. The bank expects the GDP growth will reach 5.8 percent in 2018, but possible policy adjustments measures are likely to slowdown in growth in the next fiscal year. There is need to correct the macroeconomic imbalances to achieve growth rate of 5.4 percent in 2020.

Former finance minister Ishaq Dar claimed that the country had achieved macroeconomic stability, but no sooner he left the office, all his claims fell apart. There is a need to recover, restore and preserve the pace of steady growth by implementing reforms. The World Bank report claims that the country was expecting to achieve the GDP growth of 5.8 percent in 2018 on the basis of improved energy supply, persistent private consumption growth and relying on the infrastructure projects under China-Pakistan Economic Corridor. To manage the political risks will be an uphill task for the next government. According to the report, apart from improvement in the foreign direct investment, the country will continue to accept loans from various sources in the medium-term while the trade deficit will continue to remain at an elevated level during fiscal year 2019-20. This means the industrial sector will be unable to perform in its full capacity and the situation of the agriculture sector will not be different as the growers and land owners are losing their interest in the agriculture business. Keeping in view the World Bank report, it is hard to predict any positive change in the economic outlook of the country.

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