IMF urges Pakistan to reduce budget deficit

WASHINGTON: The International Monetary Fund on Thursday urged Pakistan to reduce its large budget deficit to bolster the struggling economy's resiliency.

Pakistan's growth remains too weak, underlying inflation is high and the trade balance is heading in the wrong direction, the IMF said in a statement.

"The situation is compounded by an uncertain global environment and a difficult domestic situation, as well as adverse effects of natural disasters," said the IMF, citing executive board discussions on Pakistan.

For the third year in a row, Pakistan has been hit with severe flooding that has impacted millions of people and damaged economic growth.

Weak financial inflows and debt repayments have led to a decline in the central bank's foreign exchange reserves to under $10 billion in October, below adequate levels, the IMF noted.

"Directors underscored that reducing the large fiscal deficit is essential for restoring macroeconomic and external stability," it said.

The deficit, excluding grants, hit 8.5 percent of gross domestic product last year, substantially higher than the original 4.0 percent target, according to the Washington-based lender.

In the 2012-2013 fiscal year that began on July 1, the IMF projected the deficit would shrink to 6.4 percent of GDP as growth slows half a point from the previous year to an annual rate of 3.2 percent.

The IMF directors called on Pakistani authorities to undertake short-term efforts to broaden key taxes and reduce subsidies, while protecting the most vulnerable.

Pakistan had a $10.7 billion IMF loan until September, but had drawn only about a third of it. The government has indicated it would not seek a new loan.