Islamabad, Pakistan – The International Monetary Fund (IMF) says Pakistan’s economic challenges are “complex and multifaceted” and the risks are “exceptionally high”.
In a report released on Tuesday, the global lender said Pakistan’s economy had been rocked by “significant shocks” over the past year, which included floods that caused damage of more than $30bn, the war in Ukraine and other “fiscal and external pressures”.
“Addressing them requires steadfast implementation of agreed policies, as well as continued financial support from external partners. Consistent and decisive implementation of program agreements will be essential to reduce risks and maintain macroeconomic stability,” the 120-page report added.
The IMF released the report a week after it approved a $3bn bailout programme, including the immediate disbursal of about $1.2bn to help stabilise the economy of the South Asian country with a population of 220 million people – the world’s fifth highest.
The lender imposed stringent conditions for the bailout, including a market-determined exchange rate for the Pakistani rupee, increased energy tariffs and other reforms in the energy sector.
The government has also told the IMF it will not introduce any new tax amnesty scheme or grant tax exemptions in the current fiscal year.
The past year saw Pakistan’s economic condition worsen as it faced an ever-growing balance of payment crisis with depleting foreign reserves, ballooning debt and record-breaking inflation.
Before the IMF board’s decision to approve the bailout, Pakistan’s foreign reserves were just over $4bn, enough to cover a month of imports.
Political turmoil has added to the financial meltdown as the country heads into national elections, expected this year.
The IMF also hinted that upon completion of the arrangement, a possible successor programme could be agreed upon with the government.
“Resolving Pakistan’s structural challenges, including long-term balance of payment pressures, will require continued adjustment and creditor support beyond the program period. A possible successor arrangement could help anchor the policy adjustment needed to restore Pakistan’s medium-term viability and capacity to repay,” the report said.
‘Policy missteps’
Karachi-based economic analyst Yousuf M Farooq says the IMF recommendations could be just the medicine Pakistan’s ailing economy needs.
“If we do follow what the IMF has prescribed, we may just find ourselves out of the woods for now. We must ensure a floating foreign exchange rate, remove restrictions on imports and take other recommended policy measures,” he told Al Jazeera.
Farooq said the IMF report refers to “policy missteps” by the government and it is necessary for the country’s financial managers to show “fiscally responsible behaviour”.
Farooq, however, added that a new IMF programme is inevitable for Pakistan.
“If we manage to complete this arrangement successfully, it will give us some breathing room for the next nine months, which will allow the next elected government to negotiate a fresh IMF programme,” he said.
Economist Hina Shaikh told Al Jazeera the IMF has predicted that Pakistan’s economy will take considerable time to get back on a growth trajectory.
“The immediate disbursal [of IMF funds] will help stabilise the economy in the short run,” the Lahore-based economist said, adding that the recovery “may be short-lived”.
“The IMF report stresses what many macroeconomists have already been saying: We need structural reforms that address the key distortions in the economy,” she said.
“Successive governments would have to pursue prudent policies to meet them.”
TORONTO – Canada’s main stock index was higher in late-morning trading, helped by strength in energy stocks, while U.S. stock markets also moved up.
The S&P/TSX composite index was up 34.91 points at 23,736.98.
In New York, the Dow Jones industrial average was up 178.05 points at 41,800.13. The S&P 500 index was up 28.38 points at 5,661.47, while the Nasdaq composite was up 133.17 points at 17,725.30.
The Canadian dollar traded for 73.56 cents US compared with 73.57 cents US on Monday.
The November crude oil contract was up 68 cents at US$69.70 per barrel and the October natural gas contract was up three cents at US$2.40 per mmBTU.
The December gold contract was down US$7.80 at US$2,601.10 an ounce and the December copper contract was up a penny at US$4.28 a pound.
This report by The Canadian Press was first published Sept. 17, 2024.
OTTAWA – Canada’s inflation rate fell to two per cent last month, finally hitting the Bank of Canada’s target after a tumultuous battle with skyrocketing price growth.
The annual inflation rate fell from 2.5 per cent in July to reach the lowest level since February 2021.
Statistics Canada’s consumer price index report on Tuesday attributed the slowdown in part to lower gasoline prices.
Clothing and footwear prices also decreased on a month-over-month basis, marking the first decline in the month of August since 1971 as retailers offered larger discounts to entice shoppers amid slowing demand.
The Bank of Canada’s preferred core measures of inflation, which strip out volatility in prices, also edged down in August.
The marked slowdown in price growth last month was steeper than the 2.1 per cent annual increase forecasters were expecting ahead of Tuesday’s release and will likely spark speculation of a larger interest rate cut next month from the Bank of Canada.
“Inflation remains unthreatening and the Bank of Canada should now focus on trying to stimulate the economy and halting the upward climb in the unemployment rate,” wrote CIBC senior economist Andrew Grantham.
Benjamin Reitzes, managing director of Canadian rates and macro strategist at BMO, said Tuesday’s figures “tilt the scales” slightly in favour of more aggressive cuts, though he noted the Bank of Canada will have one more inflation reading before its October rate announcement.
“If we get another big downside surprise, calls for a 50 basis-point cut will only grow louder,” wrote Reitzes in a client note.
The central bank began rapidly hiking interest rates in March 2022 in response to runaway inflation, which peaked at a whopping 8.1 per cent that summer.
The central bank increased its key lending rate to five per cent and held it at that level until June 2024, when it delivered its first rate cut in four years.
A combination of recovered global supply chains and high interest rates have helped cool price growth in Canada and around the world.
Bank of Canada governor Tiff Macklem recently signalled that the central bank is ready to increase the size of its interest rate cuts, if inflation or the economy slow by more than expected.
Its key lending rate currently stands at 4.25 per cent.
CIBC is forecasting the central bank will cut its key rate by two percentage points between now and the middle of next year.
The U.S. Federal Reserve is also expected on Wednesday to deliver its first interest rate cut in four years.
This report by The Canadian Press was first published Sept. 17, 2024.
FREDERICTON – New Brunswick‘s finance minister says the province recorded a surplus of $500.8 million for the fiscal year that ended in March.
Ernie Steeves says the amount — more than 10 times higher than the province’s original $40.3-million budget projection for the 2023-24 fiscal year — was largely the result of a strong economy and population growth.
The report of a big surplus comes as the province prepares for an election campaign, which will officially start on Thursday and end with a vote on Oct. 21.
Steeves says growth of the surplus was fed by revenue from the Harmonized Sales Tax and federal money, especially for health-care funding.
Progressive Conservative Premier Blaine Higgs has promised to reduce the HST by two percentage points to 13 per cent if the party is elected to govern next month.
Meanwhile, the province’s net debt, according to the audited consolidated financial statements, has dropped from $12.3 billion in 2022-23 to $11.8 billion in the most recent fiscal year.
Liberal critic René Legacy says having a stronger balance sheet does not eliminate issues in health care, housing and education.
This report by The Canadian Press was first published Sept. 16, 2024.
