ISLAMABAD: According to the International Monetary Fund (IMF), Pakistan’s economy will expand by 3.2% in the current fiscal year, which is less than the government’s budget aim but higher than what two other major international organizations had predicted.
A single-digit inflation rate of 9.5 percent and a current account deficit approaching 1 percent are anticipated to accompany this growth pace.
Despite persistent risks associated with regional conflicts, a slowdown in China, the long-term effects of tight monetary policies, and financial market volatility, the IMF also predicted that global economic growth would stabilize at 3.2 percent after “winning the battle against inflation” in its World Economic Outlook (WEO-October 2024), which was released on Tuesday.
Pakistan’s growth rate is expected to progressively rise to 4.5 percent by 2029, according to the IMF, which recently granted a $7 billion loan for the country. On the other hand, the World Bank and Asian Development Bank predict that Pakistan’s inflation rate would be on the higher side of 10 percent and its growth rate will be 2.8 percent for the current fiscal year.
The forecast exceeds two major multilaterals’ estimates but falls short of the budget aim.
According to the WEO, Pakistan’s Consumer Price Index inflation rate is expected to be 9.5 percent this year and drop to 6.5 percent by 2029 from 23.4 percent in 2024. After falling to a low of 0.2 percent of GDP last year, the current account deficit is predicted to stay constant at 0.9 percent of GDP this year and in 2029.
Given that Pakistan’s most recent labor force survey was carried out in FY21, the IMF also projects that the unemployment rate will drop to 7.5 percent next year from 8 percent this year. However, it did not provide an explanation for how these numbers were arrived at.
Worldwide expansion
In 2024 and 2025, the WEO predicts that global growth would be steady but muted at 3.2 percent, essentially unchanged from predictions made in July 2024. Upgrades for the US that counteract downgrades for other advanced economies, especially the biggest European nations, are among the noteworthy adjustments.
The prognosis for the Middle East, Central Asia, and Sub-Saharan Africa has been revised downward due to disruptions in the production and shipping of commodities, particularly oil, as well as conflicts, civil unrest, and extreme weather events in emerging markets and developing economies. Positive projections for emerging Asia, where substantial investments in artificial intelligence have fueled growth due to strong demand for electronics and semiconductors, have largely countered these decreases.
Due to increased policy uncertainty, the risks to the global outlook are skewed downward. Similar to what happened in early August, abrupt spikes in financial market volatility could tighten financial conditions, affect investment and growth, and possibly lead to capital outflows and debt distress, especially in developing nations with significant short-term external financing needs.
According to the WEO, additional rises in commodity prices brought on by ongoing geopolitical tensions might cause further disruptions to the disinflation process, making it more difficult for central banks to loosen monetary policy and presenting serious obstacles to fiscal policy and financial stability.
Given China’s substantial importance in international trade, a more severe or protracted recession in the country’s real estate market, particularly if it leads to financial instability, might erode consumer confidence and have detrimental effects on other countries.
Increased protectionist measures may worsen supply chains, lower market efficiency, and increase trade conflicts. The WEO comes to the conclusion that growing societal tensions could spark instability, eroding investor and consumer confidence and possibly postponing essential structural changes.
