IMF slashes Pakistan economic growth rate to 0.5 per cent for FY23

Islamabad: The IMF has lowered its forecast for Pakistan’s economic growth rate from 2 per cent to just 0.5 per cent for the current fiscal year, amid high inflation and a growing unemployment rate in the cash-strapped country.

This showed an unambiguous deterioration of economic fundamentals over the last six months since October when the IMF forecast the country’s gross domestic product to grow by 3.5 per cent against 6 per cent for 2022 ago and inflation at 20 per cent against 12.1 per cent.

The revision in Pakistan’s growth prospects is in line with similar 0.4 per cent and 0.6 per cent projected last week by the World Bank and the Asian Development Bank, respectively. They also projected inflation at 29.5 per cent and 27.5 per cent respectively for the current year, the Dawn newspaper reported on Wednesday.

In its flagship World Economic Outlook (WEO), the IMF has also estimated the unemployment rate in Pakistan to rise to 7 per cent against 6.2 per cent last year.

For fiscal 2024, however, the IMF expected the economic growth to improve to 3.5 per cent, inflation to stay elevated at 22 per cent and the unemployment rate to slightly decline to 6.8 per cent.

At the cost of loss of growth, elevated inflation and higher unemployment, the current account deficit, according to the WEO, would decline to 2.3 per cent of GDP during this fiscal year from 4.6 per cent a year ago and slightly go up to 2.4 per cent next year.

The IMF’s current account deficit forecast is 20 basis points lower than its earlier estimate of 2.5 per cent, which had been one of the key bones of contention between the Pakistan authorities and the IMF mission in reaching a staff-level agreement.

In the latest outlook, the IMF has also slightly lowered its baseline forecast for global economic output from 3.4 per cent in 2022 to 2.8 per cent this year.

It said the tentative signs in early 2023 that the world economy could achieve a soft landing — with inflation coming down and growth steady — had receded amid stubbornly high inflation and recent financial sector turmoil.

Although inflation has declined as central banks have raised interest rates and food and energy prices have come down, underlying price pressures are proving sticky, with labour markets tight in several economies, the report said.