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Economic growth of 4% is predicted by the IMF

ISLAMABAD: The International Monetary Fund (IMF) predicted on Tuesday that Pakistan’s economy might grow by 4% this fiscal year, but that the current account deficit would be 3.1 percent of GDP, or more than $10 billion, considerably higher than government projections.

In the World Economic Outlook (WEO) report, issued on the eve of the annual IMF-World Bank Group meetings, the global lender provided three-year forecasts of Pakistan’s main economic indices.

For Pakistan, the forecasts are mixed. Unlike its sister organisation, the World Bank, the IMF has forecasted higher economic growth for this fiscal year and has approved the 3.9 percent growth forecasts from the previous fiscal year.

Also read: THE IMF WANT PAKISTAN’S ELECTRICITY TARIFF TO BE INCREASED

Pakistan’s GDP, which grew by 3.9 percent last fiscal year, is expected to increase by 4 percent in 2021-22, according to the WEO study. However, while the 4 percent growth rate was lower than the stated objective of 4.8 percent, it was greater than the World Bank’s predictions.

Pakistan said on Friday that the World Bank’s projection of 3.5 percent economic growth in the previous fiscal year was “unrealistic,” and that the Washington-based lender had overestimated the current fiscal year’s pace of 3.4 percent.

According to the World Economic Outlook, Pakistan’s average inflation rate might reach 8.5 percent this fiscal year. Inflation in Pakistan is expected to be 9.2 percent this fiscal year, according to the IMF.
The present government’s major worry is inflation, and any more increases in administrative prices under IMF terms might push inflation into double digits.

The IMF report came a day before Finance Minister Shaukat Tarin is scheduled to meet the fund’s management in Washington. Sources said that Tarin will seek concessions against harsh conditions put forth by the IMF staff, during October 4-8 talks for the revival of the stalled programme.

Tarin is also scheduled to meet IMF Managing Director Christalina Georgieva on Friday

The WEO report showed significant increase in the current account deficit during the current fiscal year. The IMF stated that the current account deficit might widen to 3.1% of the GDP or $10.1 billion at the projected size of the economy for this fiscal year.

The 3.1% of the GDP current account deficit is almost five times of the 0.6% of the GDP deficit in the previous fiscal year.

Also read: Pakistan and the IMF will be in touch for the sixth review of the EFF program.

The official target for the current account deficit was 0.7% of the GDP or $2.3 billion, which has already been breached during just first two months of the current fiscal year. Over $10 billion deficit was still on the lower side compared with some of the internal assessments of the finance ministry and the independent economists.

The current account deficit was widening due to unprecedented increase in imports during the first quarter of this fiscal year. The higher deficit could lead to higher and expensive foreign borrowings, particularly at a time when Pakistan’s relations with the IMF are at a stage of make or break.

On August 13, State Bank of Pakistan (SBP) Governor Dr Reza Baqir had said that the current account deficit would not increase in a way that it would make the economic growth unsustainable.

He had also said that the current account deficit would be between 2-3% of the GDP in this fiscal year, which roughly means between $6.5 billion to 9.5 billion for this fiscal year. However, within a month, the governor had to take some measures to contain the growing imports.

Also read: Govt debt increased by 11.5pc to Rs39.7tr

The IMF has projected that the global economy was marginally slowing down to 5.9% in 2021 but it has maintained the 2022 forecast unchanged at 4.9%. It said that modest headline revision, however, masks large downgrades for some countries.

The outlook for the low-income developing country group has darkened considerably due to worsening pandemic dynamics. The downgrade also reflects more difficult near-term prospects for the advanced economy group, in part due to supply disruptions.

The dangerous divergence in economic prospects across countries remains a major concern, according to the IMF. Aggregate output for the advanced economy group is expected to regain its pre-pandemic trend path in 2022 and exceed it by 0.9% in 2024.

By contrast, aggregate output for the emerging market and developing economy group, excluding China, is expected to remain 5.5% below the pre-pandemic forecast in 2024, resulting in a larger setback to improvements in their living standards.

These economic divergences are a consequence of large disparities in vaccine access and policy support, the IMF said. While almost 60% of the population in advanced economies is fully vaccinated and some are now receiving booster shots, about 96% of the population in low-income countries remain unvaccinated.

 

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