IMF Forecast: Pakistan’s GDP Growth, Inflation & Unemployment

The International Monetary Fund (IMF) has projected Pakistan’s GDP growth rate at 4 percent for 2022 against 5.6 percent in 2021 and projected a rise in inflation from 8.9 percent in 2021 to 11.2 percent in 2022.

IMF in its latest report “World Economic Outlook (WEO), War sets back the global recovery” has projected GDP growth rate at 4 percent in 2022 against 5.6 percent in 2021 and projected at 4.2 percent for 2023.

The Fund has also projected an increase in inflation from 8.9 percent in 2021 to 11.2 percent in 2022 which is projected to decline to 10.5 percent in 2023.

According to the report consumer prices has projected at end of the period which is elaborated as (monthly year-over-year changes and, for several countries, on a quarterly basis) for 2022 at 12.7 percent and 8.2 percent in 2023.

The current account balance is projected at -5.3 percent of GDP for 2022 against -0.6 percent in 2021 and -4.1 percent is projected for 2023.

IMF has projected unemployment at 7 percent for 2022 against 7.4 percent in 2021 and projected at 6.7 percent for 2023.

The report noted that the war in Ukraine has triggered a costly humanitarian crisis that demands a peaceful resolution. Economic damage from the conflict will contribute to a significant slowdown in global growth in 2022.

Global Outlook

Global growth is projected to slow from an estimated 6.1 percent in 2021 to 3.6 percent in 2022 and 2023. This is 0.8 and 0.2 percentage points lower for 2022 and 2023 than in the January World Economic Outlook Update. Beyond 2023, global growth is forecast to decline to about 3.3 percent over the medium term.

Crucially, this forecast assumes that the conflict remains confined to Ukraine, further sanctions on Russia exempt the energy sector (although the impact of European countries’ decisions to wean themselves off Russian energy and embargoes announced through March 31, 2022, are factored into the baseline), and the pandemic’s health and economic impacts abate over the course of 2022.

With a few exceptions, employment and output will typically remain below pre-pandemic trends through 2026. Scarring effects are expected to be much larger in emerging market and developing economies than in advanced economies—reflecting more limited policy support and generally slower vaccination—with output expected to remain below the pre-pandemic trend throughout the forecast horizon.

Unusually high uncertainty surrounds this forecast, and downside risks to the global outlook dominate—including from a possible worsening of the war, escalation of sanctions on Russia, a sharper-than-anticipated deceleration in China as a strict zero-COVID strategy is tested by Omicron, and a renewed flare-up of the pandemic should a new, more virulent virus strain emerge.

Inflation is expected to remain elevated for longer than in the previous forecast, driven by war-induced commodity price increases and broadening price pressures. For 2022, inflation is projected at 5.7 percent in advanced economies and 8.7 percent in emerging market and developing economies—1.8 and 2.8 percentage points higher than projected in January.

Although a gradual resolution of supply-demand imbalances and a modest pickup in labor supply are expected in the baseline, easing price inflation eventually, uncertainty again surrounds the forecast. Conditions could significantly deteriorate.

Worsening supply-demand imbalances—including those stemming from the war—and further increases in commodity prices could lead to persistently high inflation, rising inflation expectations, and stronger wage growth. If signs emerge that inflation will be high over the medium term, central banks will be forced to react faster than currently anticipated—raising interest rates and exposing debt vulnerabilities, particularly in emerging markets.

IMF in another report “Global Financial Stability, Shockwaves from the War in Ukraine Test the Financial System’s Resilience” noted that Bank holdings of sovereign debt vary significantly across emerging markets, ranging from about 5 percent of banking sector assets (for example, in Chile and Peru) to more than 25 percent (for example, in Brazil and Pakistan). In general, the exposure of emerging market banks to sovereign debt has risen since the global financial crisis, most notably in India, Indonesia, and Pakistan.

Courtesy: ProPakistani

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