Pakistani economy to grow at one percent this year says IMF

IMF prediction of low growth rate is lower than the government's own estimations

The International Monetary Fund (IMF) has lowered Pakistan’s growth projection by about 1 percentage points for the current fiscal year driven by weaknesses in second half of 2020. Pakistani government expected more than 2.5% GDP growth rate this year. Pakistani economy is facing economic crisis at one hand due to COVID-19 pandemic and on the other hand facing locust attacks on the crops. Agriculture was the only sector of the economy that experiences some growth last year.

All the other sectors of the economy showed negative growth. The industrial sector also in crisis as large scale manufacturing saw big drop in production. The demand plummeted as the result of COVID-19 pandemic and economic crisis.  The lowered growth rate by IMF is not a good sign for PTI government which is expecting recovery this year.  

The IMF’s Regional Economic Outlook Update: Middle East and Central Asia released on Monday said the markdowns in growth during the second half of 2020 are also reflected for Egypt and Pakistan.

Pakistan envisaged GDP growth rate at 1 percent for the current fiscal year against negative 0.4 percent for last financial year 2019/20 that ended on June 30, 2020. The IMF’s projection indicates that the economic recovery in current fiscal year would remain much lower than expectation of government.

The Middle East and Central Asia (MCD) region has reacted to the global COVID-19 pandemic with swift and stringent measures that have saved lives. However, these policies have also had a large impact on domestic economic activity.

With several countries in the region beginning reopening in past weeks, and a recent uptick in activity, rising infection numbers may pose risks.

A sharp decline in oil prices together with production cuts among oil exporters and disruptions in trade and tourism added further headwinds. As a result, growth in the region is now projected at –4.7 percent in 2020, 2 percentage points lower than in April 2020.

The unusually high level of uncertainty regarding the length of the pandemic and its impact on firm closures, the resulting downside risks (including social unrest and political instability), and potential renewed volatility in global oil markets dominate the outlook.

The pandemic will continue to test countries’ health capacity and economic resilience. While ensuring strong health systems remains the immediate priority, governments should also focus on supporting the recovery and setting up resilient and well-targeted social safety nets.

As the pandemic wanes, countries should facilitate recovery by easing the reallocation of workers and resources, as needed, while resuming gradual fiscal adjustment and rebuilding policy buffers. Multilateral support can play a key role in helping countries surmount these shocks.

IMF also says that economic recovery is going to be gradual and uncertain. The recovery in the growth rate will take more time than earlier anticipated. Many economists were expecting the recovery in the second half of the 2020 but COVID-19 pandemic is still not under control in many countries.  

                                                                    Khalid Bhatti