File photo. Saul Loeb—AFP
The International Monetary Fund (IMF) on Tuesday issued its latest World Economic Outlook report, lowering Pakistan’s projected economic growth for the ongoing fiscal year from its earliest estimated 2.5% to two percent.
In the report, the global lender also revised downward by 0.1 percent its forecast for Pakistan’s GDP growth in fiscal year 2024-25, projecting it at 3.5%. This follows the IMF’s quarterly review of Pakistan’s macroeconomic position as part of the ongoing $3 billion Standby Arrangement (SBA), which is set to expire in March. By all indications, Pakistan will have to proceed to another IMF program immediately after the existing one’s conclusion, with the incoming government expected to face tough asks from the lender to secure another bailout.
The IMF’s latest projection is broadly in line with the State Bank of Pakistan (SBP)’s estimate of the country achieving growth of 2-3% in the ongoing fiscal. It is, however, significantly lower than the 3.5% target set by the government in its annual budget.
Overall, per the report, the IMF expects global growth to hit 3.1%, owing to “greater than expected” resilience in various emerging market and developing economies, as well as the U.S. and China. Nonetheless, it said, the forecast for both 2024 and 2025 was below the historical (2000-19) average of 3.8%, “with elevated central bank policy rates to fight inflation, a withdrawal of fiscal support amid high debt weighing on economic activity, and low underlying productivity growth.”
It noted that inflation was falling faster than expected in most regions in the midst of unwinding supply-side issues and restrictive monetary policy. As such, it expected global headline inflation to decline to 5.8% in 2024 and to 4.4% in 2025.
However, the lender warned, new commodity price spikes from geopolitical shocks, such as the continued attacks on shipping lanes in the Red Sea, and supply disruptions or more persistent underlying inflation could prolong tight monetary conditions. Deepening property sector woes in China or elsewhere, as well as disruptive turn to tax hikes and spending cuts could also cause growth disappointments, it added.
According to the IMF, its projections are based on assumptions that fuel and non-fuel commodity prices will decline in 2024 and 2025 and that interest rates will decline in major economies. It estimated annual average oil prices to fall by about 2.3% in 2024.