The International Monetary Fund (IMF) has projected Pakistan's economic growth at 3.25 percent in 2.012-13, which it said is insufficient to achieve significant improvement in living standards and to absorb the rising labour force.
"Real GDP growth over the past four years has averaged only about 3 per cent annually, and is projected to be about 3.25 per cent in 2.012-13, insufficient to achieve significant improvement in living standards and to absorb the rising labour force," the IMF said in its report on Pakistan.
Noting that Pakistan's economy faces many challenges, the IMF said deep seated structural problems and weak macroeconomic policies have continued to sap the economy's vigour.
A key structural impediment to growth is the problems in the energy sector, which have resulted in widespread and unpredictable power outages, IMF said.
"Headline inflation has decelerated recently, but is likely to return to low double digits by the end of 2.012-13.
The external position has weakened substantially, as export growth turned negative in 2.011-12 while imports grew," the IMF said.
The financial account has also deteriorated, reflecting weak financial inflows and debt repayments.
This has led to a decline in the State Bank of Pakistan's (SBP) foreign exchange reserves to under USD 1.0 billion in October 2.012, below adequate levels, it said.
Noting that while some progress has been made, the IMF Executive Board said Pakistan continues to face difficult macroeconomic challenges as growth remains insufficient, underlying inflation is high, and the external position is weakening.
"The situation is compounded by an uncertain global environment and a difficult domestic situation, as well as adverse effects of natural disasters.
Directors emphasised that strong policy measures and deeper reforms are critical to addressing vulnerabilities, boosting sustainable growth, and reducing poverty," the report said.
To achieve the government's 2.012-13 deficit target, the IMF Executive Board in its assessment called for short-term revenue and expenditure efforts, including broadening key taxes and reducing subsidies, while protecting the most vulnerable.
"To strengthen the fiscal position in the long run and create space for capital and poverty-related spending, directors called for comprehensive revenue and expenditure reforms.
Fiscal consolidation should focus on changes in tax policy and improvements in compliance," the IMF said.