IMF expects Pakistan GDP to grow at 3.5pc in FY25

ISLAMABAD: After signing a Staff Level Agreement (SLA) under a $7 billion bailout package, the IMF has projected 3.5 percent GDP growth rate for Pakistan for the current fiscal year against the official projection of 3.6 percent.

The IMF had projected the real GDP growth rate of 2 percent for the last fiscal year (2023-24) ending June 30.

The provisional growth rate released by Pakistan stood at 2.38 percent during the last fiscal year released through the Economic Survey 2023-24.

The IMF did not change its GDP growth projection for FY2024 and FY2025 compared to its report in April 2024.

The World Economic Outlook (WEO) Update titled “The Global Economy in Sticky Spot” released by the IMF on Tuesday did not release its projection related to the CPI based inflation.

Pakistan has projected to keep the CPI based inflation at 12 percent for FY2025 against 23.4 for the last financial year ending June 30, 2024.

Although the IMF preferred to keep its GDP growth rate projection quite close to Pakistan’s official projection, independent economists believe that it would be quite hard to achieve 3.6 percent growth rate in the context of higher base of agricultural growth rate so the reliance would be dependent on industrial and service sector.

The report stated that the global growth was projected to be in line with the April 2024 World Economic Outlook (WEO) forecast, at 3.2 percent in 2024 and 3.3 percent in 2025. However, varied momentum in activity at the turn of the year had somewhat narrowed the output divergence across economies as cyclical factors wane and activity becomes better aligned with its potential. Services price inflation is holding up progress on disinflation, which is complicating monetary policy normalization.

Upside risks to inflation have thus increased, raising the prospect of higher-for-even-longer interest rates, in the context of escalating trade tensions and increased policy uncertainty.

To manage these risks and preserve growth, the policy mix should be sequenced carefully to achieve price stability and replenish diminished buffers.

The global activity and world trade firmed up at the turn of the year, with trade spurred by strong exports from Asia, particularly in the technology sector.

Relative to the April 2024 WEO, the first quarter growth surprised on the upside in many countries, although downside surprises in Japan and the United States were notable. In the US, after a sustained period of strong outperformance, a sharper-than-expected slowdown in growth reflected moderating consumption and a negative contribution from net trade.

In Japan, the negative growth surprise stemmed from temporary supply disruptions linked to the shutdown of a major automobile plant in the first quarter.

In contrast, shoots of economic recovery materialized in Europe, led by an improvement in services activity. In China, resurgent domestic consumption propelled the positive upside in the first quarter, aided by what looked to be a temporary surge in exports belatedly reconnecting with last year’s rise in global demand.

These developments have narrowed the output divergences somewhat across economies, as cyclical factors wane and activity becomes better aligned with its potential.