International Monetary Fund expects faster economic recovery in optimistic forecasts

• Pakistan is expected to grow at 2.5% this year and 5% in FY25
• Says the global economy is resilient to shocks but is “stumbling” as inflation continues to rise

ISLAMABAD: Recognizing Pakistan’s better-than-expected current account results in the last fiscal year, the International Monetary Fund expects the country’s economy to perform better in the current and next fiscal years compared to expectations of other multilateral agencies despite macroeconomic challenges.

International Monetary Fund Global economic outlook for OctoberThe bank, which was issued on Tuesday, expected growth of 2.5 percent for the country’s economy this year, doubling to 5 percent in the next fiscal year. This is a big jump compared to the 0.5% contraction witnessed last fiscal year.

This means that the Fund also expects a faster economic recovery than it had earlier forecast with a GDP growth rate of 5% in fiscal year 2026-2027.

The International Monetary Fund’s latest growth forecast is below the government’s 3.5% GDP growth target for the current year, but well above recent forecasts from the Washington-based World Bank and the Manila-based Asian Development Bank.

The World Bank, which expected a growth rate in Pakistan of 1.7% for this fiscal year and 2.4% in the next fiscal year, had claimed in a recent media event that its estimates were based on data for August and September.

However, the IMF may have revised its forecasts favorably based on the latest data it tracks on a daily, weekly, biweekly and monthly basis depending on different sectors as required under the ongoing bailout program with the government.

In doing so, the IMF kept growth forecasts unchanged from its estimate in July when it signed a new nine-month, $3 billion financing agreement with Pakistan. However, it has revised its estimates upward for inflation and unemployment rates for the current and future fiscal years.

The Fund previously estimated the inflation rate at 27% for the fiscal year 2023, but revised it to 29.2%. For this fiscal year, the bank revised its inflation forecast to an average of 23.5% from 22% earlier, although it indicated that year-end inflation could fall to 17.5%.

The International Monetary Fund indicated that the current account deficit reached 0.7% of GDP during fiscal year 2023, up from its previous estimate of 1.2%. He kept the forecast unchanged at 1.8% for the current fiscal year and 1.7% by the fiscal year 2027-2028.

On the other hand, the Fund estimated that the unemployment rate would rise to 8.5% in fiscal year 2023 from 6.2% in 2022, a much higher rise than the previous forecast of 7%. For the current fiscal year, the unemployment rate is expected to reach 8 percent.

In contrast, the World Bank last week estimated inflation at 26.5% for the current fiscal year and 17% for 2025. Interestingly, the World Bank showed a growth rate slightly lower than the 2% it forecast in June and less than half of the 3.5% target. Determined by the government.

Last month, the Asian Development Bank forecast Pakistan’s GDP growth rate at 1.9% and inflation rate at 25% for the current fiscal year.

Global forecasts unchanged

As for the global economy, the International Monetary Fund kept its 2023 forecasts unchanged on Tuesday, but warned that the economy was “faltering” with inflation remaining high and lowering expectations for China and Germany.

The IMF’s updated forecast still calls for 3% growth for this year, but it cut its forecast for 2024 to 2.9%, down 0.1 percentage point from the July report. France Press agency The news agency reported.

“The economy continues to recover from the pandemic and the Russian invasion of Ukraine, and is showing remarkable resilience,” said IMF Chief Economist Pierre-Olivier Gorinchas.

Conflict in Gaza

Growth forecasts for the Middle East and Central Asia were cut by half a percentage point to 2% for this year, dragged down by a lower outlook for oil-rich Saudi Arabia.

Mr. Gorinchas said it was “too early” to assess the impact of the Gaza conflict on the Middle East economy.

The picture is also bleak in Germany, where the International Monetary Fund sees a deeper recession in Europe’s largest economy – the only G7 country to experience contraction.

The German economy is expected to contract by 0.5% this year.

Published in Al-Fajr, October 11, 2023