IMF sees no relief in interest rate

KARACHI - The International Monetary Fund has indicated that countrys monetary policy may be aggressive further if the inflation is not brought down to the estimated level in the remaining months of FY10.
According to IMF Staff Mission Statement about Pakistans recent economic performance and the outlook for the rest of the fiscal year 2009/10 posted on its website on Wednesday, monetary policy will continue to focus primarily on price stability, while building international reserves. Inflation has been more persistent than expected, due to higher administered prices and higher inflationary expectations. The State Bank will monitor inflation carefully and if inflationary pressures persist, monetary policy will be tightened, as needed.
It may be recalled that the IMF Staff Mission met with the Pakistani authorities in Dubai over the past week to initiate discussions on the fourth review under Pakistans Stand-By Arrangement.
IMF mission said that structural reforms are progressing. The amendments to the State Bank of Pakistan Act have been submitted; tax administration reforms are continuing; the amendments to the Banking Companies Ordinance have been approved by the National Assembly; and electricity reform has proceeded, albeit slower than planned. Slow electricity reform is a drag on growth as it undermines the reliability of the electricity supply. The authorities reaffirmed their commitment to the introduction of the VAT by July 1, 2010 and the draft VAT law will be soon submitted to parliament and provincial assemblies.
IMF mission further said the early signs of recovery in some sectors and the improved external position is encouraging, although there are risks and challenges to Pakistans economic program. Economic growth in Pakistan is starting to recover; large-scale manufacturing output has started to increase, the improvement in the global economy has helped manufacturing exports, and private sector credit growth has picked up somewhat as businesses rebuild their working capital. Looking ahead, a resumption of higher growth is needed to raise living standards and will require improvements in the business climate to stimulate higher investment by local and foreign investors.
However, the growth outlook is subject to risks: most prominently the domestic security situation and reliability of electricity supply, as well as the pace of global economic recovery. Further, the widening of military operations, revenue shortfalls and delays in disbursements of pledged donor support have complicated fiscal management, and inflation has picked up.
Discussions focused on the fiscal program and the monetary policy stance. On the fiscal side, shortfalls in budget revenue and expenditure pressures, if any, shall be met through adjustments in expenditure and additional revenue measures, if necessary, to assure the achievement of the programs fiscal targets for 2009/10", said IMF mission.