ISLAMABAD: The International Monetary Fund (IMF) on Tuesday forecast a subdued economic growth rate of 1.5 per cent for Pakistan, coupled with a higher rate of inflation and rising unemployment, during the current fiscal year.

The 1.5pc growth projection by the IMF is in stark contrast with revised 3pc GDP growth forecast made by the State Bank of Pakistan a few days ago. The IMF estimates are in line with those of World Bank, which has projected growth at 1.3pc for current year.

In its World Economic Outlook (WEO) 2021 report, the Washington-based lending agency has projected 8.7pc average rate of inflation, current account deficit at 1.5pc of GDP and unemployment rising by 0.5pc to 5pc during current fiscal year. This is in sharp contrast with targets set by the government for the current year at 2.1pc for GDP growth rate, 6.5pc rate of inflation and 1.6pc for current account deficit.

Going forward, the IMF has projected economic growth rate recovering to 4pc of GDP next year (FY2022) and 5pc by 2026. It says inflation rate would come down from 10.2pc last year to 8pc year on year and 10pc on average by FY2022. The Fund estimates current account deficit rising from 1.1pc of GDP in FY2020 to 1.5pc in FY2021 and then going up to 1.8pc of GDP in FY2022 and peak at 2.9pc of GDP by 2026.

Fund’s projection is in contrast with 3pc GDP growth estimate of SBP

The WEO projects global growth making a strong recovery to 6pc in 2021, 0.8 percentage point above the June 2020 forecast. “After an estimated contraction of –3.3pc in 2020, the global economy is projected to grow at 6pc in 2021, moderating to 4.4pc in 2022,” it says.

The contraction for 2020 is 1.1 percentage points smaller than projected in the October 2020 WEO, reflecting the higher-than-expected growth outturns in the second half of the year for most regions after lockdowns were eased and as economies adapted to new ways of working.

The projections for 2021 and 2022 are 0.8 percentage point and 0.2 percentage point stronger than in the October 2020 WEO, reflecting additional fiscal support in a few large economies and the anticipated vaccine-powered recovery in the second half of the year.

According to the report, global growth is expected to moderate to 3.3pc over the medium term — reflecting projected damage to supply potential and forces that predate the pandemic, including aging-related slower labour force growth in advanced economies and some emerging market economies.

Thanks to unprecedented policy response, the Covid-19 recession is likely to leave smaller scars than the 2008 global financial crisis. However, emerging market economies and low-income developing countries have been hit harder and are expected to suffer more significant medium-term losses, the WEO observes.

The IMF estimates 5.1pc growth during 2021 for advanced economies including 6.4pc for the euro area, 3.3pc for Japan and 5.3pc for UK. The growth prospects for emerging market and developing economies are put at 6.7pc led by 12.5pc for India and 8.4pc for China.

Nonetheless, the outlook presents daunting challenges related to divergences in the speed of recovery both across and within countries and the potential for persistent economic damage from the crisis. Yet, even with high uncertainty about the path of the pandemic, a way out of this health and economic crisis is increasingly visible, thanks to the ingenuity of the scientific community that produced multiple vaccines that can reduce the severity and frequency of infections.

In parallel, adaptation to pandemic life has enabled the global economy to do well despite subdued overall mobility, leading to a stronger-than-anticipated rebound, on average, across regions. Additional fiscal support in some economies, especially the United States — on top of an already unprecedented fiscal response last year and continued monetary accommodation — further uplift the economic outlook.

The divergent recovery paths are likely to create significantly wider gaps in living standards between developing countries and others, compared to pre-pandemic expectations, the IMF says, explaining that cumulative per capita income losses over 2020–22, compared to pre-pandemic projections, are equivalent to 20pc of 2019 per capita GDP in emerging markets and developing economies (excluding China), while in advanced economies the losses are expected to be relatively smaller, at 11pc. “This has reversed gains in poverty reduction, with an additional 95 million people expected to have entered the ranks of the extreme poor in 2020, and 80 million more undernourished than before”.

The WEO notes that multi-speed recoveries are under way in all regions and across income groups, linked to stark differences in the pace of vaccine rollout, the extent of economic policy support, and structural factors such as reliance on tourism. Among advanced economies, the United States is expected to surpass its pre-Covid GDP level this year, while many others in the group will return to their pre-Covid levels only in 2022. Similarly, among emerging market and developing economies, China has already returned to pre-Covid GDP in 2020, but many others are not expected to do so until well into 2023.

The contraction of activity in 2020 was unprecedented in living memory in its speed and synchronised nature. But it could have been a lot worse. Although difficult to pin down precisely, IMF staff estimates suggest that the contraction could have been three times as large if not for extraordinary policy support.

Published in Dawn, April 7th, 2021

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