IMF sees Pakistan’s current account deficit, inflation at higher levels

ISLAMABAD: The International Monetary Fund (IMF) on Tuesday forecast Pakistan’s economic growth rate at four per cent, and higher than estimated inflation and current account deficit during the ongoing fiscal year.

The growth forecast is generally in line with similar estimates by other development lenders — such as the World Bank’s 4.3pc and Asian Development Bank’s 4pc — and credit rating agencies — Moody’s 3-4pc — but significantly lower than a 4.8pc target set in the budget 2021-22.

In its World Economic Outlook (WEO) 2022, the IMF projected an 11.2pc average rate of inflation for the current year against 8.9pc last year. The Washington-based lending agency also worked out Pakistan’s current account deficit at 5.3pc of GDP (up from just 0.6pc last fiscal year) and 7pc unemployment rate, slightly lower than 7.4pc of last year.

This is in sharp contrast to the targets set by the government for the current year at 4.8pc for GDP growth rate, 8pc rate of inflation and current account deficit at just 0.7pc of GDP.

Forecasts GDP growth at 4pc, largely in line with similar estimates by other development lenders

Going forward, the IMF projected the economic growth rate to recover to 4.2pc of GDP during the next fiscal year (FY23). It said the rate of inflation would come down from 11.2pc this year to 10.5pc next year. The Fund also estimated the current account deficit to fall to 4.1pc of GDP in FY23.

The WEO said the rate of unemployment in Pakistan was estimated to come in at 7pc this year against 7.4pc last year and go further down to 6.7pc next year.

It projected global growth to slow down from an estimated 6.1pc in 2021 to 3.6pc in 2022 and 2023. This is 0.8 and 0.2 percentage points lower for 2022 and 2023 than its January estimates. Beyond 2023, global growth is forecast to decline to about 3.3pc over the medium term.

The forecast is based on the assumption that the conflict remains confined to Ukraine, further sanctions on Russia exempt the energy sector (although the impact of European countries’ decisions to wean themselves off Russian energy and embargoes announced through March 31, 2022, are factored into the baseline), and the pandemic’s health and economic impacts abate over the course of 2022.

The IMF estimated a subdued 3.3pc growth during 2022 for advanced economies (against 5.2pc last year), including 2.8pc for the eurozone (against 5.3pc last year), 2.4pc in Japan (against 1.6pc of last year) and 3.7pc for the UK (against 7.4pc last year). The growth prospects for emerging market and developing economies were put at 3.8pc, led by 8.2pc in India and 4.4pc in China.

With a few exceptions, employment and output will typically remain below pre-pandemic trends through 2026. Scarring effects are expected to be much larger in emerging markets and developing economies than in advanced economies.

Unusually high uncertainty surrounds this forecast, and downside risks to the global outlook dominate — including from a possible worsening of the war, escalation of sanctions on Russia, a sharper-than-anticipated deceleration in China as a strict zero-Covid strategy is tested by Omicron, and a renewed flare-up of the pandemic should a new, more virulent virus strain emerge.

Moreover, the war in Ukraine has increased the probability of wider social tensions because of higher food and energy prices, which would further weigh on the outlook.

Global inflation is expected to remain elevated for longer than in the previous forecast, driven by war-induced commodity price increases and broadening price pressures.

For 2022, inflation is projected at 5.7pc in advanced economies and 8.7pc in emerging market and developing economies — 1.8 and 2.8 percentage points higher than projected in January.

Although a gradual resolution of supply-demand imbalances and a modest pickup in labour supply are expected in the baseline, easing price inflation eventually, uncertainty again surrounds the forecast.

Conditions could significantly deteriorate. Worsening supply-demand imbalances — including those stemming from the war — and further increases in commodity prices could lead to persistently high inflation, rising inflation expectations, and stronger wage growth.