IMF slashes Pak's growth rate to 0.5% for FY23

The IMF has lowered its forecast for Pakistan’s economic growth rate from 2% to just 0.5% 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% against 6% for 2022 and inflation at 20% against 12.1%.

The revision in Pakistan’s growth prospects is in line with similar 0.4% and 0.6% projected last week by the World Bank and the Asian Development Bank, respectively. They also projected inflation at 29.5% and 27.5% 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% against 6.2% last year.

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

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% of GDP during this fiscal year from 4.6% a year ago and slightly go up to 2.4% next year.

The IMF’s current account deficit forecast is 20 basis points lower than its earlier estimate of 2.5%, 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% in 2022 to 2.8% 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.