Islamabad: The International Monetary Fund (IMF) decided to maintain Pakistan’s economic growth forecast at 2.5% on Tuesday. Simultaneously, the IMF made a notable adjustment by reducing the inflation rate projection to 23.6% for the current fiscal year. This move aligns closely with official expectations and projections.
In a report published by the IMF, Pakistan’s economic future takes center stage. However, beneath this headline figure lie important nuances. The IMF took a different stance on Pakistan’s economic performance for the last fiscal year. While the country claimed a 0.3% GDP growth, the IMF’s report shows a troubling 0.5% economic contraction for the same period.
This discrepancy highlights potential differences in economic data interpretation and the challenges of economic measurement in the region.
Comparing Pakistan’s growth forecast with other international financial institutions, the IMF’s projection of 2.5% stands out as the most optimistic. In contrast, the World Bank offers a more conservative 1.7% growth forecast, and the Asian Development Bank predicts growth at 1.9%. The State Bank of Pakistan (SBP) envisions growth near 2%.
It’s crucial to consider the impact of Pakistan’s annual population growth rate, which stands at 2.6%. An economic growth rate below this expanding population ratio could lead to higher unemployment and increased poverty.
Looking into the future, the IMF provides a beacon of hope, projecting Pakistan’s economic growth to soar to 5% by the year 2028. But it’s vital to recognize that these forecasts are subject to change due to rapid economic developments within the country.
The IMF’s most significant adjustment in the report relates to inflation. The organization has revised Pakistan’s average annual inflation forecast to 23.6% for the current fiscal year, down from its previous projection of 26.3% in July. Although this adjustment appears positive, it’s essential to note that 23.6% still exceeds the official targets set by the central bank and the federal government.
The surge in inflation in Pakistan can be attributed to several factors, including administered increases in energy and petroleum product prices and currency devaluation. A crackdown on currency smuggling has contributed to a positive shift in the rupee-dollar exchange rate.
Furthermore, the IMF indicates that Pakistan’s current account deficit is likely to hover around 1.8% of the gross domestic product (GDP) for the current fiscal year. This aligns with its previous forecast but slightly surpasses official targets.
In the realm of employment, the IMF projects a decrease in Pakistan’s unemployment rate to 8% during the current fiscal year, down from 8.5% in the previous year.
Turning to the global perspective, the IMF anticipates a slowdown in economic growth, with projections shifting from 3.5% in 2022 to 3% in the current year. Furthermore, this growth is expected to decelerate further to 2.9% in the subsequent year.
On a more positive note, headline inflation is on a declining trajectory, dropping from 9.2% in 2022 to 5.9% this year, with an expected further reduction to 4.8% in the following year. Core inflation, which excludes food and energy prices, is also projected to decline, though at a slower pace than headline inflation.*
In conclusion, the IMF’s report suggests a “soft landing” scenario, characterized by a controlled decrease in inflation without a significant economic downturn.
However, there are notable disparities between advanced economies and emerging markets in terms of economic performance, with many emerging markets demonstrating resilience.
Three significant global forces are at play, including the completion of the service sector’s recovery, the implementation of tighter monetary policies to combat inflation, and the lingering effects of last year’s commodity price shock.
These factors collectively shape the global economic landscape, with divergences emerging between various regions and economies.