IMF’s World Economic Outlook 2014

Talking of apple to apple comparisons, Pakistan is no longer compared to the likes of Sri Lanka, India, Bangladesh, etc. The IMF last year created a new analytical region MENAP, including Afghanistan and Pakistan in the MENA region. The IMF recent World Economic Outlook 2014 report hints at MENAP region turning a corner in 2014-15, having witnessed tepid growth of late.
Weak confidence, high unemployment, large public deficits and low competitiveness are highlighted as key downsides risks which are expected to weigh on the region’s economic prospects. The consumer confidence is slated to have touched new lows for the region, but Pakistan may well be an exception as latest local surveys present an optimistic picture. That said, risk of failure in implementing reforms, as highlighted by the IMF, still hinges on and has the potential to wipe out the confidence amongst consumers and businesses.
Pakistan’s GDP growth is projected at 3.1 percent in 2014, much lower than the government’s own estimates and IMF’s estimates for Afghanistan’s GDP growth. The current account too is expected to continue in the red zone with a projection of 1 percent deficit. What’s more worrisome is the unemployment estimate, which is expected to increase by 200 bps for 2014 and another 300 bps for 2015.
The IMF in its brief outlook for Pakistan has appreciated faster than expected manufacturing sector recovery and currency appreciation. A word of appreciation is also lent to improved electricity supply, but the government has a lot to do in this regard, to sustain increased power supply in the coming peak summers. Little seems to have been done in terms of actual energy sector reforms on ground and should that be delayed any further, the weak cotton production alone could wreck havoc for the country’s economic outlook.
Although, consumer prices have subdued a little of late, the IMF has kept the projection for inflation in double digits, estimating 10 percent inflation for 2014. Much will depend on how quickly the government carries out reforms, especially in the energy sector and whether there will be more tariff rationalization in power and gas sectors.
The IMF World Economic Outlook 2014 expects advanced economies to lead global economic recovery in the next two years, which presents Pakistan an opportunity of sorts. Putting energy in order and being competitive in international market (particularly textile industry) could ease a lot of nerves and Pakistan could post a rather decent growth-–much better than what IMF has projected.