Without reforms, Pakistan’s growth rate to remain at 2.5pc till 2024: IMF

Updated April 10, 2019

Email

IMF chief Christine Lagarde at The Parliamentary Network on the World Bank and IMF Global Conference in Washington. ─ Photo courtesy Christine Lagarde Twitter
IMF chief Christine Lagarde at The Parliamentary Network on the World Bank and IMF Global Conference in Washington. ─ Photo courtesy Christine Lagarde Twitter

ISLAMABAD: As Finance Minister Asad Umar leads a delegation to Washington to finalise a three-year bailout programme, the International Monetary Fund (IMF) on Tuesday forecast Pakistan’s growth to fall to 2.9 per cent and 2.8pc during the current and next fiscal year unless its programme was accepted.

The delegation led by finance minister including State Bank of Pakistan Governor Tariq Bajwa, Finance Secretary Younas Dagha, Economic Affairs Division Secretary Noor Ahmed and senior officials from these institutions would attend the spring meetings (April 9 – 14) of the IMF and the World Bank and finalise a bailout package to stabilise macroeconomic fundamentals on the sidelines.

Before leaving for Washington, the minister had said the proposed IMF programme would be finalised on the sidelines of the spring meetings which will be followed by a fund staff mission’s visit to Islamabad in the third week of the current month to formally sign the agreement.

Finance ministry’s spokesperson was not available for comment but Information Minister Fawad Chaudhry said that Mr Umar is currently in Washington to hold talks with IMF to negotiate terms of agreement — which he said are in the final stages — but another round of talks will be held in a few days in which the loaning plan will be finalised. He added that the tax amnesty scheme will be formally launched after the finance minister’s return to Islamabad.

Expects MENAP region growth at 1.5pc in 2019 and 3.2pc by 2020

In its flagship World Economic Outlook (WEO), the IMF projects mid-term growth prospects for Pakistan to remain subdued at 2.5pc by 2024. The next year growth rate forecast by the fund was generally in line with 2.7pc growth projected by the World Bank a day earlier. However, the WB had forecast 3.6pc growth for the current fiscal year compared to 2.9pc estimated by the IMF.

Read more: Pakistan's GDP growth to shrink to 3.4pc this fiscal: World Bank

The fund attributed negative outlook to fuel prices and macroeconomic challenges and the impact of the slowdown in global economy. The fund projected consumer price index in Pakistan at 7.6pc during the current fiscal year, slowing down to 7pc next fiscal year and then stabilising to 5pc by 2024.

On the other hand, Pakistan’s current account deficit was estimated at 5.2pc of the GDP during the current year falling to 4.3pc next year before surging again to 5.4pc by 2024. Yet, the unemployment rate was anticipated to stay largely flat at 6.1pc during the current year, 6.2pc next year and remain in the same band by 2024.

The government has already shared its stabilisation and growth strategy along with all the macroeconomic data with the IMF that is believed to have become the basis of Pakistan’s economic outlook over the programme period and beyond.

‘Growth in MENAP region to remain subdued’

The WEO notes that the medium-term outlook for the Middle East, North Africa, Afghanistan, and Pakistan (MENAP) region was largely shaped by the outlook for fuel prices, needed adjustment to correct macroeconomic imbalances in certain economies and geopolitical tensions.

“In Pakistan, in the absence of further adjustment policies, growth is projected to remain subdued at about 2.5pc, with continued external and fiscal imbalances weighing on confidence”, the IMF said.

Elsewhere in the region, activity is weighed down by the expected impact of sanctions in Iran, civil strife in Syria and Yemen, and rising debt-service costs and tighter financial conditions in Lebanon. The report explained that growth in MENAP region was expected to decline to 1.5pc in 2019, before recovering to about 3.2pc by 2020.

The outlook for the region is weighed down by multiple factors, including slower GDP growth in Saudi Arabia, ongoing macroeconomic adjustment challenges in Pakistan, US sanctions in Iran, and civil tensions and conflict across several other economies, including Iraq, Syria, and Yemen, where recovery from the collapse associated with the war is now expected to be slower than previously anticipated.

Convergence prospects are bleak for some emerging market and developing economies. Across sub-Saharan Africa and the MENAP region, 41 economies, accounting for around 10pc of the global GDP in purchasing-power-parity terms and close to one billion in population, are projected to grow by less than advanced economies in per capita terms over the next five years, implying that their income levels are set to fall further behind those economies.

Higher oil prices have been the main driver of this widening income gaps, estimated to have boosted the current account balance of oil exporters by about 3.5pc of their GDP. Symmetrically, the current account deficits of some Asian net oil importers (such as India, Indonesia, and Pakistan) have widened, reflecting their higher oil import bills. Among major current account surplus and deficit countries and regions, the current account surplus of China declined considerably, to 0.4pc of GDP, while the US current account deficit is unchanged at 2.3pc, and the surplus of the Euro area declined marginally to 3pc.

The report said escalation of US-China trade tensions, macroeconomic stress in Argentina and Turkey, disruptions to the auto sector in Germany, tighter credit policies in China and financial tightening alongside the normalisation of monetary policy in the larger advanced economies have all contributed to a significantly weakened global expansion, especially in the second half of 2018 caused a slower than projected global growth.

As a result, the global economy would grow by just 3.3pc compared to earlier projections of 3.9pc.

Published in Dawn, April 10th, 2019