Poverty reduction will require substantial investment in human capital and an improvement in public service delivery, International Monetary Fund (IMF) said here on Thursday.
The IMF released Pakistan's Staff Report after completion of eighth review of the three-year Poverty Reduction and Growth Facility (PRGF) programme.
Though growth has been increasing but it would be difficult to achieve millennium development goals.
The Fund said that in the Poverty Reduction and Strategy Paper (PRSP) of Pakistan the government has projected a gradual increase in social expenditures, about 1.6 percentage points of the GDP over next five years, as well as an increase in the effectiveness of those expenditures.
This involves building adequate institutional capacity and improving governance at the local level by advancing the devolution process.
The Fund said that the prospects for achieving debt sustainability have greatly improved and Pakistan remains a highly indebted country. Debt indicators are still relatively high and reducing these further to sustainable levels in them will require continued fiscal adjustment and strong economic growth.
Moreover, the Fund said that the government has planned to gradual fiscal adjustment for a substantial decline in the debt burden to limit the risk of crisis in case of various unfavourable shocks.
In debt situation, considerable vulnerabilities remain. Two of the eight simulations (one applying lower exports and the other using a combination of shocks) would temporarily increase the NPV of debt-to-exports ratio to above 200 percent. However, none of the applied shocks leads to an explosive debt path.
Even under a scenario applying historical averages of the last 10 years to the key variables (thus, simulating a repetition of the difficult 1990s), the NPV of debt-to-exports ratio would peak in 2006-07 at 195 percent.
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