• IMF says stagflation and high unemployment rate to persist.
• Data shows unemployment rate increased in last two fiscals.
• IMF projects that GDP growth rate may rise to 5% by FY2028. 

ISLAMABAD: The International Monetary Fund (IMF) has warned that stagflation in the country would persist and also lowered the GDP growth projection for the current fiscal year 2023-24, reported The News Monday.

The global lender, in its World Economic Outlook for 2023-24, estimated that the GDP growth rate of Pakistan would stand at 2.5% for the current fiscal compared to the government’s 3.5% target.

Apart from the stagflation, the IMF has also warned that the unemployment rate will remain elevated at 8% in FY2024 against 8.5% in FY2023. The unemployment rate stood at 6.2% in FY2022. The IMF’s data shows that the unemployment rate has increased in the last two fiscals.

The report also projected that the GDP growth rate turned into -0.5% in the last financial year 2022-23 under the PDM-led regime but then the government gave a provisional growth rate of 0.29% for the previous fiscal year. The IMF has projected that the country’s GDP growth rate might rise to 5% by FY2028.

Under the IMF programme, the caretaker government will release the quarterly GDP growth figures under the $3 billion Stand-By Agreement (SBA) by the end of next month, so the finalised GDP growth figure would be turned into negative for the last financial year.

However, the CPI-based inflation-related projection would be elevated and estimated at 23.6% against the government’s projection of 21.9% for the ongoing financial year.

A low growth rate paired up with higher inflation leads to stagflation which would in turn increase poverty and unemployment, raising fears that the vulnerable segments of society might plunge into the trap of severe poverty.

The CPI-based inflation was lowered by the IMF’s World Economic Outlook; it is projected at 23.6% for the current fiscal against an earlier projection of 25.9% by the IMF staff in a report released last July.

The most worrying indicators for Pakistan’s economy will be related to the persistence of the current account deficit in the range of -1.8% of GDP for the current financial year 2023-24 against -0.7% of GDP in financial year 2022-23.

World economy resilient to shocks but ‘limping’

Meanwhile, IMF kept its 2023 global growth forecast unchanged on Tuesday but warned that the economy is “limping along” as inflation remains high and the outlooks for China and Germany were downgraded.

The IMF’s updated World Economic Outlook still sees growth of 3.0% for this year but it cut its forecast for 2024 to 2.9%, down 0.1 percentage points from its July report.

“The economy continues to recover from the pandemic and Russia’s invasion of Ukraine, showing remarkable resilience,” said the IMF’s chief economist, Pierre-Olivier Gourinchas.

“Yet growth remains slow and uneven. The global economy is limping along, not sprinting,” he said at a news conference during the institution´s annual meetings in Marrakesh, Morocco.

Inflation, which has fallen sharply since last year, is predicted to remain elevated at 6.9% this year, up slightly from July, and 5.8% in 2024, up 0.6 percentage points. Central banks have raised interest rates sharply in efforts to contain inflation.

The move could have knock-on effects on growth, but the IMF warned central banks against easing the monetary tightening too soon, adding that it still expects the global economy to have a “soft landing” — a slowdown that avoids recession. 

“The news on inflation is encouraging, but we’re not quite there yet,” Gourinchas said.