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ISLAMABAD: The International Monetary Fund (IMF) has lowered the economic growth forecast for Pakistan to 0.5% and sharply increased inflation projections far above 20% for two years
, highlighting the fact that the country’s residents’ hardships won’t soon end and interest rates may stay at their highest levels.
The IMF’s Global Economic Outlook report, which was published on Tuesday, also revealed that the international lender had slightly reduced its projection for Pakistan’s current account deficit (CAD) for this fiscal year, maintaining the unsustainable estimate of 2.3% of GDP.
According to the study, the international lender lowered the country’s GDP growth forecast for the upcoming fiscal year (FY) 2022–2023 downward.
The inflation projection was, however, markedly revised upward to account for the severe weather that was in effect at the time.
The IMF now projects an average inflation rate of 27% for the current fiscal year, up from the prediction of 19.9% at the time of the 8th Programme Review.
A 50-year high of 35% for the annual inflation rate has already been reached, and by maintaining the average rate over 27%, it was implied that the annual rate will continue to be high.
According to the research, the IMF has also upped its average inflation prediction for the upcoming fiscal year 2023–2024 by more than twice as much, to 21.9%.
The IMF had predicted a 10% inflation rate for the fiscal year 2023–2024 just eight months prior.
The higher projected inflation rate reflects the fact that any ruling government won’t have the luxury of lowering interest rates if it wants to approve the new IMF plan.
The interest rate has already been raised by the nation’s central bank to 21%.
Even after accounting for inflation, this number is still negative.
The IMF, however, expects global headline inflation to be on a downward trend.
This will occur as Pakistanis deal with the highest inflation rate in decades.
The worldwide headline inflation has been dropping at a three-month seasonally adjusted annual rate since mid-2022, according to IMF data.
According to the IMF, this dip has been attributed to a drop in the price of gasoline and energy commodities, mainly in the US, Europe, and Latin America.
The sharp currency devaluation, the implementation of new levies, and the increase in energy, gas, petrol, diesel, and supply-side food items—factors that are largely indigenous—have all contributed to Pakistan’s rising inflation.
According to the article, the IMF has lowered its forecast for Pakistan’s GDP growth from 3.5% to barely 0.5% for this fiscal year, which is in line with projections made by the World Bank and Asian Development Bank.
Also, the IMF reduced its prediction for economic growth for the upcoming fiscal year from 4.2% to 3.5%.
For the next 20 years, Pakistan’s economy must develop at a pace of at least 7% to 8%, according to numerous studies, in order to accommodate the country’s growing youth population.
In order to accomplish this pace, the succeeding governments have relied only on borrowings, which has every time resulted in an economic disaster.
According to the IMF study, Pakistan’s unemployment rate would rise from its current 6.2% to 7% in this fiscal year.
The World Bank forecast last week that a total of 3.9 million additional Pakistanis will experience poverty as a result of numerous economic shocks.
In contrast to the projections made by the World Bank and the Asian Development Bank, the IMF study places the CAD at 2.3% of GDP for the current fiscal year.
The deficit for the upcoming fiscal year has been estimated at 2.4% of GDP.
The IMF estimated Pakistan’s CAD to be 2.5 percent of GDP at the time of the eighth review.
But, due to import restrictions, the deficit was just $3.9 billion for the first eight months, and it will now rise to $8 billion in the final four months.
Due to the greater projected deficit, Pakistan will need to secure more loans to cover its external finance needs.
Due to the greater projected deficit, Pakistan will need to secure more loans to cover its external finance needs.
The government’s inability to obtain $6 billion in new loans is one of two difficulties that must be resolved before a staff-level deal with the IMF can be concluded.
Pakistan asserts that it has already obtained a $2 billion funding guarantee from Saudi Arabia and is awaiting the UAE’s confirmation of a $1 billion loan. It still has a $3 billion shortfall after this.
The IMF has slightly lowered its projection of 2.8% global economic growth for 2023, down from the forecast made in January 2023 by 0.1 percentage points.
The analysis from the global lender states that it is becoming more and more difficult for the international economy to resume its previous rate of economic development before the slew of shocks in 2022 and the recent financial sector upheaval.
The repercussions of the negative shocks that have occurred cumulatively over the previous three years, most notably the COVID-19 outbreak and Russia’s invasion of Ukraine, have put the world economy in yet another highly unstable situation.
According to the IMF, financial markets were also shaken by the sudden failures of two specialized regional banks in the US in mid-March 2023 and the loss of confidence in Credit Suisse, a major international bank. Depositors and investors began to question the security of their holdings and stayed away from institutions and investments that they perceived as being at risk.
A mediated takeover happened as a result of the decline in confidence in Credit Suisse.
