Pakistan to grow at 2 percent, face 25 percent inflation: IMF

Notwithstanding a relatively better global outlook, the International Monetary Fund (IMF) on Tuesday maintained Pakistan’s economic growth prospects for the current fiscal year at two per cent, which it had revised downward in January from its previous estimate of 2.5pc.

In its flagship World Economic Outlook (WEO 2024), released on Tuesday, the IMF kept the country’s growth rate at 3.5pc for the next fiscal year. In January, the Fund had lowered the current year’s growth rate by 0.5pc from 2.5pc and by 0.1pc from 3.6pc for FY25, which it anticipated in October 2023.

The growth estimates are based on the Fund’s recent quarterly review of Pakistan’s macroeconomic position as part of the $3bn Stand-By Arrangement (SBA) on which the two sides reached a Staff-Level Agreement (SLA) on March 20.

The IMF forecast is slightly higher than projections made by its Washington-based cousin — the World Bank — at 1.8pc early this month. The IMF’s growth forecast is significantly lower than the government’s 3.5pc GDP growth target for the current year but generally in line with the State Bank of Pakistan’s expectation of 2pc to 3pc announced last month as part of the Monetary Policy Statement.

The IMF estimated that Pakistan’s average inflation will decelerate to 24.8pc this year from 29.2pc last year and further slow to 12.7pc in FY25. Also, the Fund projected the current account deficit increasing to 1.1pc of GDP this year from 0.7pc last year and rising further to 1.2pc next year.

On the other hand, the IMF estimated that the unemployment rate would gradually decline from 8.5pc in FY23 to 8pc this year and 7.5pc next fiscal year.

In the WEO report, the IMF raised the global growth rate for 2024 to 3.2pc, 0.1pc higher than its 3.1pc forecast of January and significantly higher than its October forecast of 2.9pc. “The forecast for 2024 is revised up by 0.1bps from January and by 0.3bps from October 2023”.

The pace of expansion is low by historical standards, owing to both near-term factors, such as still-high borrowing costs and withdrawal of fiscal support, and longer-term effects from the Covid-19 pandemic and Russia’s invasion of Ukraine; weak growth in productivity; and increasing geo-economic fragmentation.

The WEO expected the global headline inflation to fall from an annual average of 6.8pc in 2023 to 5.9pc in 2024 and 4.5pc in 2025, with advanced economies returning to their inflation targets sooner than emerging market and developing economies. The latest forecast for global growth five years from now — at 3.1pc — is at its lowest in decades. The pace of convergence toward higher living standards for middle- and lower-income countries has slowed, implying persistence in global economic disparities, the IMF said.

The relatively weak medium-term outlook reflects lower GDP per person growth stemming, notably, from persistent structural frictions preventing capital and labour from moving to productive firms.

It noted that dimmer prospects for growth in China and other large emerging market economies will weigh on the prospects of trading partners, given their increasing share of the global economy.