IMF slashes Pakistan’s economic growth


The rise in central bank rates to fight inflation and Russia’s war in Ukraine continue to weigh on economic activity….reports Asian Lite News

The International Monetary Fund projected a slowdown in the Gross Domestic Product (GDP) from 3.5 per cent to 2 per cent for the current fiscal, The News International reported.

According to the Pakistan daily, the IMF had also projected that the GDP growth rate would rebound in the next fiscal 2023-24 up to 4.4 per cent. Global growth is projected to fall from an estimated 3.4 per cent in 2022 to 2.9 per cent in 2023, then rise to 3.1 per cent in 2024, according to IMF’s World Economic Outlook (WEO) released on Tuesday.

The rise in central bank rates to fight inflation and Russia’s war in Ukraine continue to weigh on economic activity. 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, reported The News International.

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 Tuesday, Pierre-Olivier Gourinchas, the chief economist of the IMF, said Pakistan is going to slow down, and that’s partly the end of the stimulus from fiscal policy in 2022, according to the statement released on IMF’s website.

Responding to a query regarding the bailout program negotiations with Pakistan, Gourinchas said, “Pakistan’s economy is coming out of a very strong 2022 with 6 per cent growth, well above the world average. But in 2023, there will be a slowdown, and that’s partly the end of the stimulus from fiscal policy in 2022. That’s going away. And also because of the high inflation, the central bank has increased interest rates, which we see as an appropriate step, 17 per cent recently, the interest rates.”

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“That’s going to cool domestic demand. And so we see a growth of 2 per cent in 2023. Unfortunately, we also had to downgrade the forecast growth for Pakistan by one and a half percentage points for 2023. And that’s because of the floods, which was a terrible supply shock, both reducing activity, but also raising inflation and putting various pressures on the country. Inflation, therefore, went up because of this. We see inflation reaching about 21 per cent in 2023. This is also because of the exchange rate depreciation,” he further stated.

Talks kick off in capital

The crucial meeting of the International Monetary Fund (IMF) review mission team, which has landed in Islamabad to review Pakistan’s Extended Funding Facility (EFF) after it made two major changes as per the requirements of the IMF, kicked off on Tuesday.

Pakistan is direly banking on the success of the talks between the IMF team and Finance Minister Ishaq Dar to not only approve the review, release the pending tranche, but also to save the country from sinking into an economic meltdown.

The IMF review mission is headed by its chief Nathan Porter, who called on Dar on Tuesday and expressed hopes that Pakistan would meet the lender’s requirements in time.

The Pakistan government has already taken two major steps of increasing petroleum prices and letting its rupee value be evaluated and established by the market, resulting in a massive shoot of the US dollar by at least Rs 35 within 48 hours.

Dar has already stated that the tough decisions are being taken to meet the requirements and demands of the IMF, which is the only option left for the country to opt for and restore domestic and external sustainability, strengthening the country’s fiscal position and countering the fast pace of the country’s drift towards bankruptcy.

As per details of the meeting between the IMF team and Dar, economic and fiscal policies, and power sector reforms were discussed at length as part of the ninth review of the EFF.

“The Finance Minister briefed the mission on fiscal and economic reforms and measures being taken by the government in different sectors, including bridging the fiscal gap, exchange rate stability and the energy sector for the betterment of the economy,” said an official in the know of things.

“He (Ishaq Dar) also said that reforms are being introduced in the power sector and a high-level committee has been formed for devising modalities to offset the menace of circular debts in the gas sector,” the official added.

It is pertinent to mention that Pakistan is in desperate and dire need of restoration of the IMF programme as the government has lost all other options to handle its foreign exchange reserves, while the funding commitments from other countries are also linked to the revival of the IMF EFF programme.

The one positive aspect for Pakistan was the comment of the IMF review team chief Nathan Porter, who expressed confidence that Pakistan would meet the IMF requirements for the completion of the ninth review.

“Nathan Porter hoped that Pakistan would continue towards its progress on reforms in various sectors and will complete the IMF programme effectively and in time,” the official quoted above said.

It is hoped that the revival of the IMF programme would open the gateways to fetch new foreign exchange debt inflows of about $4 billion within 60 days, which would positively help the foreign exchange reserves and avert the looming risk of default.

However, in the process of fulfilling the tough demands of the IMF, Pakistan has already committed to put immense pressure on the masses by shooting up inflation between 29 per cent and 32 per cent from February onwards. (ANI/IANS – with inputs from Hamza Ameer)

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