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Wednesday, April 17, 2024

Pakistan’s GDP growth target 0.8% too ambitious as per IMF’s latest projection

The October edition of the World Economic Outlook projects Pakistan’s GDP to grow by 4.0% - 0.8% less than the target set by the incumbent government. The report stresses the need for equitable vaccine access for every country and calls on the G7 and G20 nations to deliver the outstanding doses of vaccines they promised. Vaccines manufacturers and developed countries have been asked to aid the regional production of COVID-19 vaccines.

The International Monetary Fund has released the October edition of the World Economic Outlook and it contains grim projections regarding Pakistan’s economic trajectory for the current fiscal year. The IMF has projected Pakistan’s GDP growth to be 4.0% in FY22. The PTI government, on the other hand, has set Pakistan’s GDP growth target at 4.8% – a bit too ambitious.

Pakistan’s economy registered an astonishing 3.96% GDP growth in FY21. This depicted that Pakistan’s economy rebounded strongly from the pandemic-induced economic slump in which economic growth nosedived to  -0.5%.  This led the current government to set a highly optimistic GDP growth target of 4.8% for the ongoing fiscal year.

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In addition to the GDP growth forecast, IMF has predicted that inflation level will decrease significantly in FY22. The inflation level was 8.9% in the previous fiscal year and the IMF maintains that the consumer price level will drop by only 0.4% to 8.5% in FY22.

Current Account Deficit is expected to reach 3.1% of GDP – up by a whopping 2.5%. The current account deficit was registered to be 0.6% of GDP in FY21. Furthermore, unemployment is likely to fall by only 0.2% to 4.8% in FY22 as per the monetary fund.

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Forecasts by Fitch Solutions

In September this year, Fitch Solutions assigned a high probability to Pakistan’s economic growth  breaching the 4.0% barrier, but still being 0.6% short of the mark set by the federal government. Several factors were outlined by the US based credit rating agency that can affect the projected growth rate of 4.2%. Domestically, the presence of highly contagious delta variant of corona virus amongst the population – coupled with low inoculation rates – continue to pose a potent threat to the much anticipated economic progress.

With the IMF expecting a growth of 4.0% and Fitch Solutions predicting a growth of 4.2%, it remains to be seen whether the government triumphs in crossing the finishing line in the race for economic resurrection.

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Moreover, Fitch Solutions is anticipating a current account deficit of 2.2% for FY22 – 0.9% less than IMF’s projection. This is due to the expectation of imports edging up swiftly than exports because of an unexpectedly strong rebound in domestic demand but the international lending agency expects an even stronger growth of imports.

Estimates by the Asian Development Bank

It is worth noting that the Asian Development Bank has also predicted Pakistan’s economy to grow by 4% in the current fiscal year. This growth forecast relies on the assumption of recovery in private investment as consumer confidence and business activity continue to show improvement amid the ongoing vaccination rollout and various economic stimulus measures announced in the budget for FY22.

While the ADB has the same expectation as the IMF on GDP growth, its inflation forecast is well below the one made by the Washington-based money lender. The ADB predicts inflation to lower to 7.5% in FY22. This forecast hinges on the success of the incumbent government’s agriculture transformation plan – the National Agriculture Emergency Programme – which will help curtail the food inflation in the economy.

The ADB – in the September edition of its Asian Development Outlook – expressed the likelihood of the current account deficit to go up by only 0.9% from the previous year’s recorded level of 0.6%. This is in sharp contrast of IMF’s estimate of 3.1%.

The Imran Khan led government staunchly believes that the economy is on the path to stabilization and will be able to register growth rates of 6 to 7 percent in approximately three years. With GDP growth forecasts encouraging for the populace, inflation and unemployment have emerged as the key challenges for the present ruling party. Skillful tackling of these grave issues is what will determine the fate of Pakistan’s economic prowess.