Militancy threatens Pakistan’s improving growth, warns IMF

* Fund says security conditions in country remain ‘difficult’ * Significant terrorist and sectarian violence, urban criminal activities, delays in implementing key reforms to address energy challenges, improve business climate, broaden tax base

KARACHI: The International Monetary Fund said Friday that Pakistan’s key economic indicators were showing modest improvement but warned militancy and crime could threaten growth and investment.
The IMF warning came in its country report reviewing Pakistan’s performance under a $6.7 billion bailout loan package. The government is in talks with the country’s Taliban faction to try to end the militants’ bloody seven-year insurgency, which has claimed thousands of lives. “For the fiscal year 2014-15, growth is forecast to accelerate to about 3.7 percent, and will continue to accelerate in the medium term,” the report said. “Security conditions in Pakistan remain difficult with significant terrorist activity, as well as sectarian violence and urban criminal activity, which could depress investment and growth.”
The peace talks were a key campaign pledge for Prime Minister Nawaz Sharif before he was elected to office for a third time last year, but have so far made little progress. As well as the Taliban threat, Pakistan is also facing a rising tide of sectarian bloodshed, and rampant criminal violence in the economic capital Karachi. The report was prepared after the IMF team met the Pakistani finance minister and other officials in Dubai last month to discuss the economic performance, approval and release of the $550 million third instalment of the loan.
The meeting was held outside Pakistan because of security worries, the fund said. The State Bank of Pakistan spokesman Friday confirmed that $550 million had been transferred from the IMF to bring foreign exchange reserves $9.1 billion. The Washington-based lender also pointed to rising inflation in the current fiscal year. “Inflation is projected to hover around 10 percent in the remainder of this fiscal year before easing to around 5-7 percent in future years,” it said. Delays in implementing key reforms to address energy challenges, improve the business climate, broaden the tax base and improve tax administration, could also damage economic prospects, the report said.
The International Monetary Fund said it saw strong signs of growth in Pakistan as the long-troubled economy undertakes structural reforms. The IMF confirmed its recent forecast of 3.1 percent growth this year, which was revised up from an earlier 2.8 percent. “The overall economic situation in Pakistan is gradually improving,” said Jeffrey Franks, the IMF mission chief for the country. “That 3.1 percent may still be a bit on the conservative side, so we see indicators of growth that are relatively strong considering the fiscal adjustment that has taken place,” he told reporters on a conference call.
For the 2014-15 fiscal year, the IMF expected Pakistan’s growth to accelerate to around 3.7 percent. An IMF report said that the growth was boosted by a stronger manufacturing industry thanks to an easing of Pakistan’s chronic electricity shortages, despite weaknesses in agriculture. But the report cautioned that Pakistan still had tight foreign reserves and security challenges, including Taliban violence. The report also said that Prime Minister Nawaz Sharif’s government, despite its commitment to IMF-backed reforms, faced “strong” political resistance to certain structural measures.
Nawaz’s government, after taking office in June, reached a $6.7 billion bailout deal with the IMF which insisted on economic reforms, especially in the energy sector and tax system. Yaseen Anwar, the governor of the State Bank of Pakistan who was appointed by a previous government, resigned in January ahead of the latest IMF review.

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