IMF revises Pakistan GDP growth forecast to 2%

• The GDP growth rate will be 3.5% for the next fiscal year 25.
• Global growth is forecast at 3.1% in 2024 and 3.2% in 2025.
• Inflation is easing faster than expected in most areas.

ISLAMABAD: The International Monetary Fund (IMF) has revised its forecast for the growth rate of Gross Domestic Product (GDP) to 2% for Pakistan during the current financial year from its previous forecast of 2.5%. The news reported on Wednesday.

It shows that per capita income in dollars is expected to decline as population growth was 2.6%. If the real GDP growth rate is 2%, then in dollar terms the income of Pakistanis will not see any increase.

According to the World Economic Outlook (WEO) report published by the IMF, Pakistan’s growth rate was projected at 2% of GDP for the current financial year FY24. It is also predicted that the GDP growth rate will be 3.5% for the next financial year 25.

Global growth is forecast at 3.1% in 2024 and 3.2% in 2025, with the 2024 forecast 0.2 percentage points higher than in the October 2023 World Economic Outlook (WEO) due to stronger than expected resilience in the United States and several major emerging market and developing economies, as well as fiscal support in China.

The forecast for 2024-25 is, however, below the historical (2000-2019) average of 3.8%, with the central bank raising interest rates to fight inflation, withdrawing fiscal support amid high debt burdens economic activity and low underlying productivity growth.

Inflation is falling faster than expected in most regions, amid easing supply-side issues and tight monetary policy. Global headline inflation is expected to decline to 5.8% in 2024 and 4.4% in 2025, with the 2025 forecast revised downwards.

With deflation and steady growth, the likelihood of a hard landing has receded and risks to global growth are broadly balanced.

On the upside, faster deflation could lead to further easing of financial conditions. Looser fiscal policy than required and assumed in the projections could lead to temporarily higher growth, but with the risk of a more costly adjustment later.

Stronger dynamics of structural reforms could boost productivity with positive cross-border spillovers. On the other hand, fresh spikes in commodity prices from geopolitical shocks – including the ongoing Red Sea attacks – and supply disruptions or more persistent underlying inflation could prolong tight monetary conditions.

Deepening housing woes in China or, elsewhere, a disruptive shift to tax hikes and spending cuts could also cause growth disappointments.

The short-term challenge for policymakers is to successfully manage inflation’s eventual descent to target by calibrating monetary policy in response to underlying inflation dynamics and — where wage and price pressures clearly disappear — by adjusting to a less restrictive stance .

At the same time, in many cases, with inflation falling and economies better able to absorb the effects of fiscal tightening, there has been a renewed focus on fiscal consolidation to rebuild fiscal capacity to deal with future shocks, raise revenue for new priorities spending and limiting the rise needs public debt.

Targeted and carefully sequenced structural reforms would enhance productivity growth and debt sustainability and accelerate convergence towards higher income levels.

More effective multilateral coordination is needed, among other things, to resolve debt, to avoid debt distress and create space for needed investment, and to mitigate the effects of climate change.