EDITORIAL: The International Monetary Fund (IMF) in its half yearly global economic forecast has now revised Pakistan's GDP growth for 2021 upward to 3.9 percent from April's forecast of 2.1 percent. The global forecast has been kept unchanged at 6 percent. Interestingly, advanced economies' forecast is increased by 0.5 percent and that is being completely offset by fall in growth rates in emerging economies. Pakistan's provisional GDP growth is 3.9 percent in fiscal year 2020-21, while the final figures could well be higher. The State Bank of Pakistan (SBP) expects 2021-22 growth at 4-5 percent of GDP. The IMF's forecast for calendar year 2021 is 3.9 percent. This implies that the Fund's projection is still conservative relative to SBP's estimates. This contrasts with the revision for other emerging and low-income economies where growth forecasts have been downgraded.
Majority of the world economies have shown negative growth in 2020. The world output was -3.2 percent in 2020 with advanced economies falling by 4.6 percent and emerging economies by 2.1 percent. The bounce-back is quite sharp in both emerging and advanced economies: 6.3 percent and 5.6 percent, respectively.
Pakistan's volatility is low as the economy was going through a stabilisation phase during pre-Covid period. Nonetheless, the country witnessed negative economic growth rate in 2019-20 which was a first in over seven decades. Thereafter, a sharp reduction in interest rates, timely concessions and incentives by SBP, and fiscal package by the federal government along with a strategy of smart lockdown turned an overall grim economic scenario into a bright one. The continuation of growth momentum is challenging due to the onslaught of the fourth wave of the Covid pandemic amidst delays in vaccination. Moreover, fiscal ability to support businesses and households is limited. Furthermore, rising global commodity prices are building pressures on both current and fiscal accounts. The PKR, too, is under pressure. The story of many other emerging economies is similar; as the currencies of those economies, too, have lately depreciated against the US dollar. One reason is a possible earlier than expected monetary policy measures by the US Fed. The IMF, however, is of the view that inflationary pressures from rising commodity prices are temporary. Many central banks are of the view that this inflation cannot be handled through curbing demand. There is logical reasoning behind this view. Employment around many economies is not yet at pre-pandemic levels and inflation is primarily due to supply shocks. The question is how long these supply side issues would take to normalize?
In the case of Pakistan, the bigger worry is slippage in the current account and fiscal deficit. The country does not have enough reserves to sustain a sharp increase in current account deficit without building further reserves. The fiscal slippages are likely to come due to compromise on petroleum revenues which are budgeted at eight percent of total federal government tax and non-tax revenues. Although economic growth momentum will hold, it is unlikely to accelerate as envisaged by the government. Similarly, the speed of vaccination drive is very important to avoid lockdowns. The situation in the country's economic capital, Karachi, is quite critical. The outlook for emerging economies facing risks from low vaccination is alarming. The economic battleground is the speed of vaccination and fiscal/monetary ammunition a country has in reserves. Higher is the vaccination density and greater the financial buffers, the better would be the economic outlook.
Copyright Business Recorder, 2021
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