IMF predictions

While Pakistan tries for another package, IMF predicts a continued stagflationary future

The real interest in the IMF’s latest Economic Outlooks predictions for Pakistan lie in the fact that Pakistan is about to begin negotiations for a fresh package, spread over a longer term and involving more money than the Stand-By Arrangement about to expire. Even though the second review by the IMF concluded successfully, it has still not placed the release of the tranche on the IMF’s Board of Directors, which must accord approval before the money can be released. It should therefore be somewhat of a relief for Pakistan, that the IMF has maintained its prediction for GDP growth this fiscal year at 2 percent in its latest World Economic Outlook, the same as it predicted in January, with that a downgrade from the 2.5 percent predicted earlier. For the next fiscal year, the IMF now predicts growth of 3.5 percent, down from the 3.6 percent forecast in October.

Though the IMF was more pessimistic than the State Bank, which has projected growth this year at between 2 and 3 percent, or the Pakistan government, which has a target of 3.5 percent, it is still more optimistic than the World Bank prediction early this month of 1.8 percent. The IMF prediction was probably the one Finance Minister Muhammad Aurangzeb used in his meeting with World Bank President Sanjay Banga in their meeting on Wednesday. This kind of growth is anaemic, not being able to keep pace with the number of new entrants into the job market.

The inflation projections by the IMF is that this year it will come down from last year’s 29.2 percent to 24.8 percent, and will slow further to 12.7 percent next year. In other words, the IMF sees Pakistan as trapped in a stagflationary cycle, with even next year showing low growth combined with an inflation figure beyond what the consumer can bear.

A question which arises from these projections is to what extent are they factoring in a new IMF package. It would be helpful to see how much the economy would grow, and prices rise, according to the IMF it it was to give a new package, and how much if it was to. In short, how much difference a package would really make. That would not only help clarify the choices before the public, but help the government as it enters negotiations. But perhaps the IMF prefers holding its cards close to its chest.

The Editorial Department of Pakistan Today can be contacted at: [email protected].


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