By Staff Reporter
ISLAMABAD Pakistan’s economy is on track to grow faster than previously forecasted by the International Monetary Fund, despite facing macroeconomic and security challenges.
The IMF’s World Economic Outlook for October, released on Tuesday, projects a growth of 2.5 percent for Pakistan’s economy in the current fiscal year, ending in June 2024, and 5 percent in the next fiscal year. This is a significant improvement from the 0.5 percent contraction witnessed in the previous fiscal year.
The IMF’s latest growth forecast is lower than the government’s 3.5 percent target for the current year but well above the recent estimates from the World Bank and the Asian Development Bank, which predicted Pakistan’s growth rate at 1.7 percent and 1.9 percent, respectively, for this fiscal year.
The Fund also acknowledged Pakistan’s better-than-anticipated current account performance last fiscal year, when it recorded a deficit of $2.387 billion, compared to a deficit of $17.48 billion in the previous year. The improvement was driven by a sharp decline in imports, an increase in remittances, and a recovery in exports.
The IMF expects the current account balance to remain negative, reaching -1.8 percent of GDP in the current fiscal year and -1.7 percent by the 2027-28 fiscal year, as imports pick up due to higher oil prices, domestic demand, and easing restrictions.
The Fund also revised its inflation and unemployment projections upwards for the current and next fiscal years. It expects inflation to average 23.5 percent in the current fiscal year, up from 22 percent earlier, and 27 percent in the next fiscal year, up from 25 percent earlier.
It also expects unemployment to rise to 8.5 percent in the previous fiscal year, up from 6.2 percent in 2022, and remain at 8 percent in the current fiscal year.
The IMF signed a nine-month $3 billion new financing arrangement with Pakistan in July, which aims to support the government’s structural reforms, strengthen social spending, and improve governance. The Fund has already released $1.2 million as the first tranche of the program and a review of Pakistan’s economic performance is due next month.
The IMF said that Pakistan’s economic recovery is subject to “high uncertainty” and depends on the implementation of policies and reforms. It urged the authorities to continue to pursue prudent fiscal and monetary policies, enhance revenue mobilization, improve public debt management, and strengthen social safety nets.
The country is trying to navigate a tricky path to economic recovery under a caretaker government in the wake of a $3 billion IMF loan programme, approved in July, which helped avert a sovereign debt default.
Reforms set out as conditions for the loan have complicated the task of keeping price pressures and declines in the rupee in check. An easing of import restrictions and the removal of subsidies – both conditions of the bailout – have fueled spikes in energy prices.
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