IMF Estimate – Daily – DAWN.COM

The IMF’s economic growth projection of 3.2% for Pakistan is below the 3.5% target the government has set for the current fiscal, but still looks quite optimistic given account for our balance of payments constraints. This also contrasts with the 2.8% growth rate predicted by the World Bank and the Asian Development Bank. The State Bank has forecast that the economy will expand between 2.5% and 3.5% this year. The Washington-based lender, which recently approved a $7 billion rescue package for Pakistan, expects the country’s growth rate to gradually improve to 4.5 percent by 2029. Moreover, in its latest World economic outlook, the Fund expects headline inflation to decline from 23.5%. last year to 9.5% this year and 6.5% in 2029. Also, the current account deficit is stabilized at 0.9% of GDP. The IMF estimates are apparently based on projections made by its staff under the assumption that Pakistan would meet all the targets of its new financing program leading to increased foreign inflows, which would ease its position as balance of payments and would further stabilize its economic fundamentals. and allow the authorities to pursue slightly higher growth.

There is no doubt that the economy is showing signs of “improving” after a couple of very turbulent years, with moderate growth, a decline in inflation, a reduction in external pressures due to the financing of the IMF, the stabilization of the exchange rate and the reduction of the current account deficit. But these improvements are due to cuts in essential public spending and restrictive policy decisions, including import caps and high interest rates. Ultimately, growth continues to be limited by balance of payments problems and an excessive public debt burden. It also means that the economic stabilization achieved so far will likely dissipate as the economy moves to a higher growth trajectory. Therefore, the improved indicators do not reflect any gains for the common people. If anything, Pakistan is going through an “adjustment process” under the IMF. Shifting the economy into a higher gear without first addressing the balance of payments constraints would be a mistake and would lead the country back into deep financial crisis as seen repeatedly in the past. What Pakistan needs is to take advantage of this ongoing adjustment period to undertake structural reforms to attract foreign private investment to increase agricultural and industrial productivity in order to increase exports. In short, Pakistan needs to learn to walk before it starts running.

Posted in Dawn, October 24, 2024