An International Monetary Fund (IMF) Mission has held discussions with the Pakistani authorities on recent economic developments, prospects, and policies under the annual Article IV Consultation, said an official statement. The mission welcomed the measures announced in the recent Monetary Policy Statement of the State Bank of Pakistan, including the stated intention to reduce the role of the central bank in financing the government and providing export refinance. The mission noted that Pakistan s economy continued to perform well in 2006/07, with real GDP growth increasing to 7 percent. Average inflation remained near 8 percent, but the 12-month rate has declined to 6 percent in recent months. This outcome has been made possible by continued prudent macroeconomic management and structural reforms that have encouraged a strong pick-up in domestic and foreign investment. The statement said despite lower import growth, the external current account deficit had increased to 4.9 percent of GDP in 2006/07, owing to slower export growth. A surge in foreign direct investment and portfolio inflows had more than covered the external current account deficit, allowing for a significant strengthening of the international reserves position in 2006/07. At the same time, the mission underscored the need for an appropriate policy mix between monetary and fiscal policies in bringing down the external current deficit. In particular, it stressed that further fiscal consolidation, starting in 2007/08, would contribute significantly to reducing the external current deficit while lessening pressures on real interest rates. The authorities agreed that a substantial revenue mobilization effort was necessary over the medium term to reduce the fiscal deficit while allowing for additional spending on infrastructure and poverty alleviation.
