A new IMF report on regional outlook noted foreign-financed infrastructure spending as a key driver in propelling growth in oil importing countries, including Pakistan where implementation of the China-Pakistan Economic Corridor will boost investment. Pakistan is clubbed with MENAP region that includes Middle East, North Africa, Afghanistan and Pakistan in IMF Regional Outlook report released on Monday.
The report noted that among the regional countries, growth will be particularly robust in Djibouti and in Pakistan, mainly owing to the investment under CPEC. Overall, regional growth in MENAP region is expected to increase from 3.7 percent in 2016 to 4 percent in 2017 and to 4.4 percent in 2018. "More generally, the improved outlook reflects the continued dividends from past reforms, which have reduced fiscal deficits and improved the business climate (Morocco, Pakistan), supported by a scaling up in public investment (Pakistan)," the report noted.
Global growth is gaining momentum and is projected to reach 3.5 percent in 2017 and 3.6 percent in 2018, a steady improvement over the 2016 growth rate of 3.1 percent. Although, the savings from low oil prices and reduced subsidies have allowed for increased spending on infrastructure, health care, education, and social services in countries including Egypt, Morocco, Pakistan, Tunisia, it will be increasingly difficult to maintain this spending now that oil prices are expected to be higher.
The report said that in the light of the expected rise in oil prices, there was a need to push subsidy reforms through to completion and to contain losses from state-owned enterprises. More generally, a key priority for oil-importing countries is to generate higher revenues by broadening the existing tax base, the report said adding that it will require simplifying the tax rate structure and eliminating exemptions in countries including Djibouti, Egypt, Jordan, Lebanon, Morocco, Pakistan, Sudan, Tunisia.
"Across MENAP oil importers, growth rates are too low to reduce unemployment or provide a broad-based and resilient improvement in incomes. And fiscal constraints will prevent country authorities from boosting growth through public spending alone".
The outlook remains vulnerable to changes in oil prices and the global outlook, and to geopolitical developments. US interest rates have risen, and tighter and more volatile global financial conditions could increase borrowing costs for MENAP oil importers and their banks, adding to fiscal sustainability concerns, weighing on bank balance sheets, and undermining private sector activity. "Such tightening could be particularly challenging for countries such as Egypt, Jordan, Lebanon, Pakistan, and Tunisia, which will be competing for funds in international markets," the IMF Regional Outlook observed.