IMF revises Pakistan’s GDP growth projections downward

ISLAMABAD: The International Monetary Fund (IMF) has revised downward GDP growth rate projection for Pakistan from 3.5 percent to two percent for 2023 against six percent in 2022.

The IMF World Economic Outlook (WEO) Update “inflation peaking amid low growth” projected Pakistan’s GDP growth at two per cent for 2023 and four per cent for 2024. However, the IMF WEO report released in October 2022, had projected GDP growth rate for Pakistan at 3.5 per cent for 2023 against six per cent in 2022, but it did not include the impact of the floods.

The World Bank has also projected Pakistan’s GDP growth rate at two per cent in the fiscal year 2022-23.

The Fund stated that global growth is projected to fall from an estimated 3.4 per cent in 2022 to 2.9 per cent in 2023, then it will rise to 3.1 per cent in 2024. The forecast for 2023 is 0.2 percentage point higher than predicted in the October 2022 WEO but below the historical (2000–19) average of 3.8 per cent. The rise in central bank rates to fight inflation and Russia’s war in Ukraine continue to weigh on economic activity.

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The rapid spread of Covid-19 in China dampened growth in 2022, but the recent reopening has paved the way for a faster-than-expected recovery. Global inflation is expected to fall from 8.8 per cent in 2022 to 6.6 per cent in 2023 and 4.3 per cent in 2024, still above pre-pandemic (2017–19) levels of about 3.5 per cent.

The balance of risks remains tilted to the downside, but adverse risks have moderated since the October 2022 WEO. On the upside, a stronger boost from pent-up demand in numerous economies or a faster fall in inflation is plausible. On the downside, severe health outcomes in China could hold back the recovery, Russia’s war in Ukraine could escalate, and tighter global financing costs could worsen debt distress. Financial markets could also suddenly re-price in response to adverse inflation news, while further geopolitical fragmentation could hamper economic progress.

It further stated that in most economies, amid the cost-of-living crisis, the priority remains achieving sustained disinflation. With tighter monetary conditions and lower growth potentially affecting financial and debt stability, it is necessary to deploy macro-prudential tools and strengthen debt restructuring frameworks. Accelerating COVID-19 vaccinations in China would safeguard the recovery, with positive cross-border spill overs.

Fiscal support should be better targeted at those most affected by elevated food and energy prices, and broad-based fiscal relief measures should be withdrawn. Stronger multilateral cooperation is essential to preserve the gains from the rules-based multilateral system and to mitigate climate change by limiting emissions and raising green investment.

Copyright Business Recorder, 2023