ISLAMABAD: Hinting at entrenched high inflation, the International Monetary Fund (IMF) on Tuesday lowered its forecast for Pakistan’s economic growth rate for the current fiscal year to just 0.5 per cent, with inflation going beyond 27pc and the unemployment rate increasing to 7pc.
This showed an unambiguous deterioration of economic fundamentals over the last six months since October when the Fund forecast the country’s gross domestic product to grow by 3.5pc against 6pc for 2022 ago and inflation at 20pc against 12.1pc last year amid a slowdown in the global economy and devastating effects of floods.
Meanwhile, global headline inflation is set to fall from 8.7pc in 2022 to 7pc in 2023 on the back of lower commodity prices, but core inflation — excluding the volatile energy and food components — is likely to decline more slowly, the IMF said.
The revision in Pakistan’s growth prospects is in line with similar 0.4pc and 0.6pc projected last week by the World Bank and the Asian Development Bank, respectively. They also projected inflation at 29.5pc and 27.5pc, respectively, for the current year.
Projects 27.1pc inflation, 2.3pc current account deficit, 7pc unemployment rate for this fiscal year
In its flagship World Economic Outlook (WEO), the IMF has also estimated the unemployment rate in Pakistan to rise to 7pc against 6.2pc last year. For fiscal 2024, however, the IMF expected the economic growth to improve to 3.5pc, inflation to stay elevated at 22pc and the unemployment rate to slightly decline to 6.8pc.
At the cost of loss of growth, elevated inflation and higher unemployment, the current account deficit, according to the WEO, would decline to 2.3pc of GDP during this fiscal year from 4.6pc a year ago and slightly go up to 2.4pc next year.
The IMF’s current account deficit forecast is 20 basis points lower than its earlier estimate of 2.5pc, which had been one of the key bones of contention between the Pakistan authorities and the IMF mission in reaching a staff-level agreement.
In the latest outlook, the IMF has also slightly lowered its baseline forecast for global economic output from 3.4pc in 2022 to 2.8pc this year against its earlier projections of 2.9pc, before rising slowly and settling at 3pc five years out — the lowest medium-term forecast in decades. This forecast for the coming years is well below what was expected before the onset of the adverse shocks since early 2022 and described it as a “rocky landing”.
It said the tentative signs in early 2023 that the world economy could achieve a soft landing — with inflation coming down and growth steady — had receded amid stubbornly high inflation and recent financial sector turmoil.
Although inflation has declined as central banks have raised interest rates and food and energy prices have come down, underlying price pressures are proving sticky, with labour markets tight in several economies.
Published in Dawn, April 12th, 2023
