Inflation in Pakistan could average 33 per cent in the first half of 2023 before trending lower, and a bailout from the International Monetary Fund (IMF) alone is unlikely to put the economy back on track, a senior economist with Moody’s Analytics told Reuters.

“Our view is that an IMF bailout alone isn’t going to be enough to get the economy back on track. What the economy really needs is persistent and sound economic management,” senior economist Katrina Ell said in an interview on Wednesday.

“There’s still an inevitably tough journey ahead. We’re expecting fiscal and monetary austerity to continue well into 2024,” she added.

The government and the IMF could not reach a deal last week and a visiting IMF delegation departed Islamabad after 10 days of talks, but said negotiations would continue. Pakistan is in dire need of funds as it battles a wrenching economic crisis.

An agreement on the ninth review of the programme would release over $1.1 billion of the total $2.5bn pending as part of the current package agreed in 2019 which ends on June 30. The funds are crucial for the economy whose current foreign exchange reserves barely cover 18 days worth of imports.

“Even though the economy is in a deep recession, inflation is incredibly high as (a result of) part of the latest bailout conditions,” Ell said.

“So what we’re expecting is that through the first half of this year, inflation is going to average about 33pc and then might trend a little bit lower after that,” she added.

The Consumer Price Index rose 27.5pc year-on-year in January, its highest in nearly half a century.

Low-income households could remain under extreme pressure as a result of high inflation on account of being disproportionately exposed to non-discretionary items.

“Food prices are high and they can’t avoid paying for that, so we’re going to see higher poverty rates as well feed through,” the economist said.

No overnight fix

Ell said Pakistan has not had a great track record when it comes to IMF bailouts, so infusing additional funds alone may prove to be of little use.

“If we’re going to see any improvement, it’s going to be very gradual. There’s just no overnight fix,” she said.

The weaker rupee, which plumbed record lows, is adding to imported inflation while domestically high energy costs on the back of tariff increases and still elevated food prices are likely to keep inflation high.

Moody’s expects economic growth for the 2023 calendar year of around 2.1pc.

“It is likely that we will see further monetary tightening in Pakistan to try and stabilise inflation and also with the weakness in the FX they might kind of intervene there to try and force in stability, but again it’s not going to be a silver bullet,” Ell said.

Last month, the central bank raised its key interest rate by 100 basis points (bps) to 17pc in a bid to rein in persistent price pressures. It has raised the key rate by a total of 725 bps since January 2022.

With significant recession-type conditions, skyrocketing borrowing costs could really exacerbate domestic demand struggles, she said.

“You really need to see sustained sound macroeconomic management, and just injecting further funds in there without decent backing is not going to deliver the results that you’re looking for.”

Follow Dawn Business on Twitter, LinkedIn, Instagram and Facebook for insights on business, finance and tech from Pakistan and across the world.

Opinion

Editorial

Energy inflation
Updated 23 May, 2024

Energy inflation

The widening gap between the haves and have-nots is already tearing apart Pakistan’s social fabric.
Culture of violence
23 May, 2024

Culture of violence

WHILE political differences are part of the democratic process, there can be no justification for such disagreements...
Flooding threats
23 May, 2024

Flooding threats

WITH temperatures in GB and KP forecasted to be four to six degrees higher than normal this week, the threat of...
Bulldozed bill
Updated 22 May, 2024

Bulldozed bill

Where once the party was championing the people and their voices, it is now devising new means to silence them.
Out of the abyss
22 May, 2024

Out of the abyss

ENFORCED disappearances remain a persistent blight on fundamental human rights in the country. Recent exchanges...
Holding Israel accountable
22 May, 2024

Holding Israel accountable

ALTHOUGH the International Criminal Court’s prosecutor wants arrest warrants to be issued for Israel’s prime...