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Sunday, April 14, 2024

IMF confirms PTI govt achieved 3.9% GDP growth

Earlier in April this year, the IMF had projected Pakistan’s real GDP to grow at 1.5% in the year 2021. Why was IMF so pessimistic?

The International Monetary Fund (IMF) endorsed on Tuesday Pakistan’s real Gross Domestic Product (GDP) growth rate of 3.9%.

In its World Economic Outlook report 2021 (Update), the IMF also acknowledged Pakistan’s robust economic performance and said that “Projections are revised up for the Middle East and Central Asia due to robust activity in some countries (such as ..Pakistan).

Earlier in April this year, the IMF had projected Pakistan’s real GDP to grow at 1.5% in the year 2021 despite a higher projected rate of 3.0% by the State Bank of Pakistan (SBP).

Pakistan government had already released the provisional data of GDP growth rate (3.9%) for the year 2020-21 backed by robust industrial growth and higher than expected agriculture output.

Read more: Pakistan’s economy remains a challenging situation for Tarin, experts

The SBP on Tuesday forecast the GDP growth to rise from 3.9% in FY21 to 4- 5% this year, and average inflation to moderate to 7-9% from its recent higher out-turns.

Meanwhile the IMF in its statement said economic prospects have diverged further across countries since the April 2021 World Economic Outlook (WEO) forecast.

Vaccine access has emerged as the principal fault line along which the global recovery splits into two blocs: those that can look forward to further normalization of activity later this year (almost all advanced economies) and those that will still face resurgent infections and rising COVID death tolls, it added.

The recovery, however, is not assured even in countries where infections are currently very low so long as the virus circulates elsewhere.

The global economy is projected to grow 6.0 percent in 2021 and 4.9 percent in 2022. The 2021 global forecast is unchanged from the April 2021 WEO, but with offsetting revisions. Prospects for emerging market and developing economies have been marked down for 2021, especially for Emerging Asia. By contrast, the forecast for advanced economies is revised up. These revisions reflect pandemic developments and changes in policy support.

The 0.5 percentage-point upgrade for 2022 derives largely from the forecast upgrade for advanced economies, particularly the United States, reflecting the anticipated legislation of additional fiscal support in the second half of 2021 and improved health metrics more broadly across the group.

Recent price pressures for the most part reflect unusual pandemic-related developments and transitory supply-demand mismatches. Inflation is expected to return to its pre-pandemic ranges in most countries in 2022 once these disturbances work their way through prices, though uncertainty remains high. Elevated inflation is also expected in some emerging market and developing economies, related in part to high food prices.

Read more: Pakistan’s Economy: long term direction?

Central banks should generally look through transitory inflation pressures and avoid tightening until there is more clarity on underlying price dynamics. Clear communication from central banks on the outlook for monetary policy will be key to shaping inflation expectations and safeguarding against premature tightening of financial conditions. There is, however, a risk that transitory pressures could become more persistent and central banks may need to take preemptive action.

Risks around the global baseline are to the downside. Slower-than-anticipated vaccine rollout would allow the virus to mutate further. Financial conditions could tighten rapidly, for instance from a reassessment of the monetary policy outlook in advanced economies if inflation expectations increase more rapidly than anticipated. A double hit to emerging market and developing economies from worsening pandemic dynamics and tighter external financial conditions would severely set back their recovery and drag global growth below this outlook’s baseline.

Multilateral action has a vital role to play in diminishing divergences and strengthening global prospects. The immediate priority is to deploy vaccines equitably worldwide. A $50 billion IMF staff proposal, jointly endorsed by the World Health Organization, World Trade Organization, and World Bank, provides clear targets and pragmatic actions at a feasible cost to end the pandemic. Financially constrained economies also need unimpeded access to international liquidity.

Read more: Does Pakistan need the Chicago Boys to save its economy?

The proposed $650 billion General Allocation of Special Drawing Rights at the IMF is set to boost reserve assets of all economies and help ease liquidity constraints. Countries also need to redouble collective efforts to reduce greenhouse gas emissions. These multilateral actions can be reinforced by national-level policies tailored to the stage of the crisis that help catalyze a sustainable, inclusive recovery.

Concerted, well-directed policies can make the difference between a future of durable recoveries for all economies or one with widening fault lines—as many struggle with the health crisis while a handful see conditions normalize, albeit with the constant threat of renewed flare-ups.

Courtesy: APP