CAD crops up in IMF talks

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It’s no surprise that the bloating current account deficit as come up in ongoing technical level talks with the IMF because there has been increasing concern, ever since the last couple of months of the last fiscal year, that CAD might be getting out of control once again. The IMF certainly thinks so, believing that it will likely cross the budget’s target of 2pc of GDP and settle somewhere around 4pc, and the economy is overheating barely a quarter into the new fiscal, which means screws would have to be tightened on both fiscal and monetary policy.
The government should have expected to hear this even if it did not want to. The finance ministry spent all day before this news trying to play down an assessment of the World Bank, which expressed similar concerns and revised this year’s expected growth rate down to 3.4pc, very different from the government’s own projection of 4.8pc. In a few days the finance minister, SBP governor and finance secretary are going to hold conclusive talks with the Fund in Washington, and there are already signs that the ambitious, expansionary budget is going to feel the heat. For if it does not accept any progress unless electricity and gas tariffs are increased, interest rate is also increased, and subsidies sprinkled by the finance ministry are rolled back, then expansionary plans all the way to the next election have had it. The good news is that for once revenue collection has surprised to the upside. Surely this will count as something, even though the composition of the tax basket still leaves a lot to be desired and the Fund might want some change there as well. So a lot remains to be seen.