Islamabad: A new paper prepared by the International Monetary Fund (IMF) staff highlights significant economic challenges and potential pathways for growth in Pakistan. The document, part of the IMF’s periodic consultation with Pakistan, underscores the country’s economic lag compared to regional peers and outlines essential structural reforms needed to enhance economic performance and resilience.

According to International Monetary Fund, the paper titled “Pakistan: Selected Issues,” completed on September 11, 2024, identifies key macroeconomic distortions including protectionist policies, a burdensome regulatory and fiscal environment, and inadequate investment in human capital. Despite these hurdles, the report notes opportunities for Pakistan to improve productivity and living standards through technology adoption and resource reallocation toward advanced goods and services.

The analysis within the paper uses simulations from the IMF’s DIGNAR and DIGNAD models to project the outcomes of proposed structural reforms. These reforms, encompassing fiscal-structural adjustments, labor market enhancements, trade liberalization, and state-owned enterprise (SOE) restructuring, could potentially increase Pakistan’s growth rate by about 2 percent over five years while also reducing inequality. Additionally, proactive investment in climate-adaptive infrastructure is shown to mitigate the adverse effects of natural disasters, fostering quicker and more robust economic recovery.

The paper also delves into the complex relationships within Pakistan’s financial sector, particularly the significant holdings of government securities by banks and their funding strategies involving short-term central bank liquidity. This nexus between the sovereign, banks, and central bank is highlighted as a critical area for policy attention due to its broad implications across the economic landscape.