IMF influence in Pakistan on the rise

The International Monetary Fund's influence in Pakistan's central bank got another boost with the appointment of a second senior official from the fund, as per a Bloomberg report.

Murtaza Syed was appointed as deputy governor at the State Bank of Pakistan (SBP) for a three-year term, according to a finance ministry notification. Syed was previously deputy division chief in the IMF's strategy, policy, and review department and was involved with country-level programs.

Prime Minister Imran Khan last year named IMF economist Reza Baqir as the central bank governor as part of an overhaul of top finance posts to help stabilize the economy. The same year, South Asia's second-largest economy won a $6 billion support program from the fund. The economy has since posted early successes, prompting an upgrade of its credit rating outlook by Moody's Investors Service that cited narrowing current account deficit and lower external vulnerability risks.

A survey of nearly 100 senior accountancy experts on economic conditions in Pakistan shows a marked increase in economic confidence during the last three months of 2019, recovering strongly to above both its long run and recent average levels.

However, the global report Global Economic ConditionsSurvey (GECS), jointly published by ACCA (the Association of Chartered Certified Accountants) and IMA®(Institute of M a n a g em e n t Accountants)alsopoints to an unusual economic picture for Pakistan: while confidence increased, the orders balance was weak and below average.

Explaining the situation, Sajjeed Aslam, head of ACCA Pakistan says: ' This is unusual, but in fact it makes sense as the rise in confidence relates to progress in addressing structural imbalances while orders point to continued weak GDP growth in coming quarters.' The focus of policy continues to be the correction of imbalances in the government and external sectors and the reduction of inflation from double digit rates to within a 5 to 7 per cent target range.

There has been a big fall in the current account deficit, including a monthly surplus in October 2019, mainly as a result of weaker imports.

The fiscal deficit is also declining as revenue raising measures instigated by the IMF take effect. The bad news is that inflation has increased in recent months, reaching 12.4% in December compared with just over 7% at the start of the year. Nevertheless, the State Bank of Pakistan kept interest rates on hold at 13.35% at its latest policy meeting in November.

The outlook for the economy remains for modest growth of around 3.5% in 2020, below the long run average.

Sajjeed Aslam adds: 'The view from Pakistan's central bank is that temporary factors have pushed up inflation to an elevated rate, notably through food prices. As these effects diminish, inflation is likely to moderate. In addition, the State Bank of Pakistan notes that a stable currency and the end of monetary financing of government deficits have eased inflation expectations.'

Global economic confidence bounced back in Q4 2020, to around its level in mid-2019. The global poll of 2,560 accountants shows that all key regions reported a bounce in confidence and the most confident part of the global economy was again South Asia and the Middle East.

In Q4, GECS's inflation measure fell to the lowest level in three years at 42%. Inflation in developed and many developing economies is running at low levels.

Indeed, in some cases concerns are growing that inflation is too low such that deflation cannot be ruled out.