• Pakistan’s growth rate this year is projected to be 2.5 percent, and 5 percent in fiscal year 2015.
• States that the global economy is resilient to shocks but is ‘limping’ due to high inflation.
ISLAMABAD: Recognizing Pakistan’s better-than-anticipated current account performance in the previous fiscal year, the International Monetary Fund (IMF) anticipates that the country’s economy will grow in the current and next fiscal years, surpassing the projections of other multilateral agencies despite macroeconomic challenges. Will show improvement over time.
The IMF’s World Economic Outlook for October, released on Tuesday, forecasts a growth of 2.5 percent for the country’s economy in the current year, which will double to 5 percent in the next fiscal year. This represents a significant increase compared to the 0.5 percent contraction observed in the last financial year.
This implies that the IMF also expects a more rapid economic recovery compared to the projected 5 percent GDP growth rate in FY 2026-27.
The IMF’s most recent growth forecast is below the government’s target of 3.5 percent GDP growth for the current year, but significantly higher than recent forecasts from the World Bank in Washington and the Asian Development Bank (ADB) in Manila.
The World Bank, which had predicted Pakistan’s growth rate to be 1.7 percent for this fiscal year and 2.4 percent in the next fiscal year, stated at a recent media event that its projections were based on data from August-September.
However, the IMF may have revised its projections upwards based on the latest data tracked on a daily, weekly, fortnightly, and monthly basis, depending on the various sectors required under the ongoing bailout program with the government.
In doing so, the IMF kept its growth forecast unchanged from its July estimate when it signed a new nine-month $3 billion financing arrangement with Pakistan. However, it lowered its projections for inflation and unemployment rates for the current and next financial years.
The fund had previously estimated inflation at 27 percent for fiscal year 2023 but revised it to 29.2 percent. For this fiscal year, it revised its inflation forecast to an average of 23.5 percent from the previous 22 percent, although it noted that inflation could decrease to 17.5 percent by the end of the year.
The IMF projected the current account deficit to be 0.7 percent of GDP during fiscal year 2023, higher than its previous estimate of 1.2 percent. It maintained the projection at 1.8 percent for the current financial year and 1.7 percent for the 2027-28 financial year.
On the other hand, the fund estimates that the unemployment rate will rise to 8.5 percent in fiscal 2023 from 6.2 percent in 2022, which is much higher than the previous estimate of 7 percent. The unemployment rate for the current financial year has been estimated at 8 percent.
In contrast, last week the World Bank projected inflation at 26.5 percent for the current fiscal year and 17 percent for 2025. Interestingly, the growth rate was slightly lower than the 2 percent forecasted by the World Bank in June and less than half of the government’s target of 3.5 percent.
Last month, the ADB estimated Pakistan’s GDP growth rate at 1.9 percent and inflation at 25 percent for the current fiscal year.
Global forecast remains unchanged
Regarding the global economy, the IMF on Tuesday maintained its 2023 forecast while cautioning that the economy is “limping” due to high inflation and lowered outlooks for China and Germany.
The IMF’s updated outlook still predicts 3 percent growth for this year, but it has lowered its forecast for 2024 to 2.9 percent, which is 0.1 percentage point lower than its July report. AFP reported the news agency.
“The economy is recovering from the pandemic and Russia’s invasion of Ukraine, showing remarkable resilience,” said Pierre-Olivier Gourinchas, the IMF’s chief economist.
The growth outlook for the Middle East and Central Asia this year was reduced by half a percentage point to 2 percent due to a lower forecast for oil-rich Saudi Arabia.
Mr. Gourinchas stated that it was “too early” to assess the impact of the Gaza conflict on the Middle East economy.
The picture is also gloomy in Germany, with the IMF predicting a severe recession in Europe’s largest economy, the only country in the G7 experiencing a decline.
The German economy is expected to contract by 0.5 percent this year.
Published in Dawn, October 11, 2023