The International Monetary Fund (IMF) has recently updated its economic forecasts, indicating a slowdown in Pakistan’s economic growth.
The IMF’s report titled “World Economic Outlook Update, moderating inflation and steady growth open path to soft landing” has cut Pakistan’s projected Gross Domestic Product (GDP) growth rate by 0.5 percent, bringing it down to 2 percent for the year 2024.
In a previous forecast made in October 2023, the IMF had predicted that Pakistan’s economy would grow by 2.5 percent in 2024. This projection has now been adjusted. Additionally, the growth forecast for the following fiscal year has been slightly reduced by 0.1 percent to 3.5 percent.
Globally, the IMF expects economic growth to be at 3.1 percent in 2024 and 3.2 percent in 2025. The prediction for 2024 shows a slight increase of 0.2 percentage points from the October 2023 forecast, due to unexpected economic resilience in the United States and some large emerging markets, along with fiscal support in China.
However, these figures are still below the average global growth rate of 3.8 percent seen from 2000 to 2019.
The world is grappling with high interest rates set by central banks to combat inflation, the reduction of fiscal support in the face of high debt levels, and slow growth in underlying productivity. These factors are contributing to slower economic activity.
On a positive note, inflation rates are dropping more quickly than anticipated across most regions, thanks to easing supply chain issues and strict monetary policies. Global inflation is projected to decline to 5.8 percent in 2024 and further to 4.4 percent by 2025, with the forecast for 2025 being revised downward.
With inflation easing and steady economic growth, the risk of a severe downturn, or “hard landing,” is receding, and risks to global economic growth are now considered to be more balanced. For instance, if inflation continues to fall rapidly, it could lead to an easing of financial conditions.
However, there are still potential risks. These include new increases in commodity prices due to geopolitical tensions, like ongoing conflicts affecting the Red Sea, and continued supply disruptions. Persistent inflation could extend the period of tight financial conditions.
Other concerns involve a deepening crisis in China’s property sector and possible financial strains due to aggressive tax increases or spending cuts.
The IMF points out that the current challenge for policymakers is to lower inflation without causing a recession. This means carefully adjusting monetary policies according to the underlying rate of inflation. As inflation falls and economies stabilize, there’s also a push for governments to reduce spending in order to prepare for future economic shocks, fund new initiatives, and manage public debt.
To support growth and sustainable debt levels, the IMF recommends targeted, step-by-step structural reforms. It also emphasizes the need for better global cooperation to address debt issues, enable essential investments, and combat the impacts of climate change.
