• Pakistan’s growth is estimated to be 2.5 percent this year and 5 percent in FY25
• Says the global economy is resilient to shocks but is “lagging” as inflation remains high
ISLAMABAD: The International Monetary Fund (IMF) has acknowledged Pakistan’s better-than-expected current account performance in the last financial year and expects the country’s economy to perform better in the current and next financial years despite macroeconomic challenges compared to the forecasts of other multilateral organizations.
The IMF’s World Economic Outlook for October, released on Tuesday, forecasts the country’s economy to grow by 2.5 percent in the current year and double to 5 percent in the next fiscal year. This is a significant increase compared to the 0.5 percent decline in the last financial year.
This meant the fund also expected a faster economic recovery than it had previously forecast, with a GDP growth rate of 5 percent in the 2026/27 financial year.
The IMF’s latest growth forecast is below the government’s GDP growth target of 3.5 percent for the current year, but well above the latest forecasts from the Washington-based World Bank and the Manila-based Asian Development Bank (ADB).
The World Bank, which forecast Pakistan’s growth rate at 1.7 percent for this fiscal year and 2.4 percent for the next, claimed at a recent media event that its estimates were based on August-September data.
However, the IMF may have positively revised its forecasts based on the latest data, which it tracks on a daily, weekly, bi-weekly and monthly basis depending on the sector, as required under the government’s ongoing rescue program.
The IMF maintained the growth forecast from its July estimate as it signed a new nine-month, $3 billion financing agreement with Pakistan. However, it revised up its estimates for inflation and unemployment rates for the current and next fiscal years.
The fund previously estimated inflation at 27 percent for fiscal 2023, but revised it to 29.2 percent. For this fiscal year, it revised the inflation forecast to an average of 23.5 percent from the previous 22 percent, but noted that inflation could fall as low as 17.5 percent at the end of the year.
The IMF noted that the current account deficit was 0.7 percent of GDP in fiscal 2023, up from its previous estimate of 1.2 percent. The forecast remained unchanged 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 estimated that the unemployment rate rose to 8.5 percent in fiscal 2023 from 6.2 percent in 2022, well above the previous forecast of 7 percent. An unemployment rate of 8% is forecast for the current financial year.
In contrast, the World Bank last week estimated inflation at 26.5 percent for the current fiscal year and 17 percent for 2025. Interestingly, the World Bank had reported a growth rate slightly below the 2 percent forecast in June and less than half of the 3.5 percent target set by the government.
Last month, the ADB forecast Pakistan’s GDP growth rate of 1.9 percent and inflation of 25 percent for the current fiscal year.
Global forecast unchanged
As for the global economy, the IMF on Tuesday maintained its 2023 forecast but warned that the economy would “limp” as inflation remained high and the outlook for China and Germany was downgraded.
The IMF’s updated outlook still calls for 3 percent growth this year, but it cut its forecast for 2024 to 2.9 percent, down 0.1 percentage points from its July report, the news agency reported AFP.
“The economy continues to recover from the pandemic and the Russian invasion of Ukraine and shows remarkable resilience,” said IMF 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 2 percent this year, weighed 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 the ME economy.
The picture is also bleak in Germany, with the IMF seeing a deeper recession in Europe’s largest economy – the only G7 country to record a contraction.
The German economy is expected to shrink by 0.5 percent this year.
Published in Dawn, October 11, 2023