IMF expects faster economic recovery in optimistic outlook

By Khaleeq Kiani
Published in DAWN on October 11, 2023

• Sees Pakistan’s growth at 2.5pc this year, 5pc in FY25
• Says world economy resilient to shocks but ‘limping’ as inflation remains high

ISLAMABAD: Acknowle­dging Pakistan’s better-than-anticipated current account show last fiscal year, the International Monetary Fund (IMF) expects the country’s economy to perform better in the current and next fiscal years compared to other multilateral agencies’ projections despite macroeconomic challenges.

The IMF’s World Economic Outlook for October, released on Tuesday, forecasts a growth of 2.5 per cent for the country’s economy in the current year, doubling to 5pc in the next fiscal year. This is a significant jump compared to the 0.5pc contraction witnessed last fiscal year.

This meant the Fund also expected quicker economic recovery than it had forecast earlier at 5pc GDP growth rate in the 2026-27 fiscal year.

The IMF’s latest growth forecast is lower than the government’s 3.5pc GDP growth target for the current year but well above the recent forecasts from the Washington-based World Bank and the Manila-based Asian Development Bank (ADB).

The World Bank, which predicted Pakistan’s growth rate at 1.7pc for this fiscal year and 2.4pc in the next, claimed at a recent media event that its estimates were based on the August-September data.

However, the IMF may have revised its projections positively based on the latest data that it tracks on daily, weekly, fortnightly and monthly bases depending on various sectors as required under the ongoing bailout programme with the government.

In doing so, the IMF kept the growth forecast un­chan­ged from its July estimate when it signed a nine-month $3bn new financing arrangement with Pakistan. However, it revised its estimates upwards for inflation and unemployment rates for current and next fiscal years.

The Fund previously estimated inflation at 27pc for fiscal 2023 but revised it to 29.2pc. For this fiscal year, it revised the inflation projection to an average 23.5pc from 22pc earlier, although it noted that year-end inflation could drop to as low as 17.5pc.

The IMF noted the current account deficit at 0.7pc of GDP during fiscal 2023, up from its previous estimate of 1.2pc. It kept the projection unchanged at 1.8pc for the current fiscal year and 1.7pc by the 2027-28 fiscal year.

On the other hand, the fund estimated the unemployment rate to have risen to 8.5pc in fiscal 2023 from 6.2pc in 2022, up significantly higher than the earlier projection of 7pc. For the current fiscal year, the unemployment rate has been projected at 8pc.

In contrast, the World Bank last week estimated inflation at 26.5pc for the current fiscal and 17pc for 2025. Interestingly, the World Bank had shown a growth rate slightly lower than 2pc it had forecast in June and less than half the 3.5pc target set by the government.

Last month, the ADB projected Pakistan’s GDP growth rate at 1.9pc and inflation at 25pc for the current fiscal year.

Global forecast unchanged

As for the global economy, the IMF kept its 2023 forecast unchanged on Tuesday but warned that the economy is “limping along” as inflation remains high and the outlooks for China and Germany were downgraded.

The IMF’s updated outlook still sees growth of 3pc for this year, but it cut its forecast for 2024 to 2.9pc, down 0.1 percentage points from its July report, the AFP news agency reported.

“The economy continues to recover from the pandemic and Russia’s invasion of Ukraine, showing remarkable resilience,” said the IMF’s chief economist, Pierre-Olivier Gourinchas.

Gaza conflict

The growth outlook for the Middle East and Central Asia was cut by half a percentage point to 2pc for this year, dragged down by a lower forecast for oil-rich Saudi Arabia.

Mr Gourinchas said it was “too early” to assess the impact of the Gaza conflict on ME economy.

The picture is also gloomy in Germany, with the IMF seeing a deeper recession in Europe’s biggest economy — the only G7 country to have a contraction.

The German economy is expected to shrink by 0.5pc this year.

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