IMF forecasts drop in inflation, unemployment

KARACHI: The International Monetary Fund (IMF) on Tuesday kept its forecast for Pakistan’s 2021/22 GDP growth unchanged at four percent but warned that large disparities in COVID-19 vaccine access and in policy support in many developing countries could hamper their economic recoveries.

In its recent report "World Economic Outlook October 2021" released today, the IMF also endorsed the Pakistan''s provisional figures of GDP growth rate of 3.9% during the previous fiscal year 2020-21. According to the report, the unemployment rate in Pakistan would also decline from current 5.0% to 4.8% in the current fiscal year. Similarly, the inflation rate would ease from 8.9% during the year 2020-21 to 8.5% by end of current fiscal year 2021-22. Further, the IMF reported that current account deficit of Pakistan which was recorded at 0.6% in the previous year, would increase to 3.1% in FY2021-22.

The IMF reported that the global economic recovery continued amid a resurging pandemic that posed unique policy challenges. Gaps in expected recoveries across economy groups have widened since the July forecast, for instance between advanced economies and low-income developing countries.

Analysts said Pakistan’s economy appeared to have weathered the pandemic shock well relative to its peers and the central bank last month said the pace of the economic recovery has exceeded expectations. The Asian Development Bank, in September, also projected Pakistan's GDP to reach 4 percent in the fiscal year 2021-22 (FY22) as business activity gradually resumed in the second year of the COVID-19 pandemic.

In its World Economic Outlook, the IMF trimmed its 2021 global growth forecast to 5.9 percent from the 6.0 percent forecast it made in July. It left a 2022 global growth forecast unchanged at 4.9 percent. The IMF said the dangerous divergence in economic prospects across countries remains a major concern and “economic divergences are a consequence of large disparities in vaccine access and in policy support”. “Emerging and developing economies, faced with tighter financing conditions and a greater risk of de-anchoring inflation expectations, are withdrawing policy support more quickly despite larger shortfalls in output.” The government targeted five percent GDP growth in the current fiscal year. Gita Gopinath, IMF’s chief economist, said the global economic recovery continues amid increasing uncertainty, more complex policy trade-offs. “The global recovery continues but momentum has weakened, hobbled by the pandemic. Fueled by the highly transmissible Delta variant, the recorded global COVID-19 death toll has risen close to 5 million and health risks abound, holding back a full return to normalcy.” She said that pandemic outbreaks in critical links of global supply chains have resulted in longer than expected supply disruptions, feeding inflation in many countries. “Overall, risks to economic prospects have increased and policy trade-offs have become more complex.” - APP