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IMF’s dire projections

The IMF headquarters in Washington has published last month the World Econ-omic Outlook (WEO). This is a survey of global, regional and country-level developments and is usually published twice a year. The theme of this report is ‘Challenges to Steady Growth.’

The report presents IMF staff economists; analysis of developments in the near and medium-term. The database to this report contains information on 40 key macroeconomic indicators at the individual country level. Historical data on each indicator is available from 1980 to 2018. Projections of the magnitude of each indicator are included from 2019 to 2023. Extensive notes are included on definitions, sources of data and methodology of estimation.

The WEO database is considered as one of the most authentic sources of information on individual economics. The indicators cover national Accounts, Monetary, Trade, Unemployment, Government Finance and Balance of Payments variables.

the projections from 2019 to 2023 of the macroeconomic variables of Pakistan are truly unbelievable and extremely depressing in nature. Presumably members of the IMF Staff Mission to Pakistan have been involved in the making of these projections. The projections probably represent a ‘business as usual’ scenario or even worse an environment of failing economic governance in the country.

The key projections are highlighted below:

Growth Rate: The IMF expects the GDP growth to fall sharply in 2018-19 to 4% from he relatively high growth rate of 5.8% in 2017-18. Even worse, the growth rate is projected to continue falling, down to only 3% by 2022-23.

Level of Investment: one of the main reasons for the plummeting of the GDP growth rate is the projection that the level of investment as a percentage of the GDP will fall continuously from 16% in 2018-19 to 14.4% by 2022-23.

Level of National Savings: Similarly, the level of national savings is projected to decline from 10.7% of the GDP to a low of only 8.3% of the GDP by 2022-23.

Rate of Inflation: IMF expects the rate of inflation in consumer prices to jump up from 3.9% in 2017-18 to 7.5% in 2018-19. Thereafter, it is expected to fall to 5% by 2022-23.

Fiscal Deficit: The fiscal deficit is projected to remain very high in 2018-19 at 6.9% of the GDP. This is even higher than the big deficit of 6.6% of the GDP in 2017-18. Further, the IMF believes that there will be little or no reduction by 2022-23 in the level of the deficit as a percentage of the GDP. Current Account Deficit: This is also anticipated by the Fund to remain at a high level of 5.3% of the GDP in 2018-19, not much less than the magnitude of 5.9% of the GDP observed in 2017-18. The current account deficit, believe it or not, is projected to remain high and even rise to 6.1% of the GDP BY 2022-23.

The IMF has truly painted a bizarre picture of the economy of Pakistan. Apparently, it considers that due to high risk factors, wrong policies and poor governance, investment, both foreign and domestic, will be less inclined to set up projects in Pakistan. Simultaneously, a high fiscal deficit will act as a major constraint to public development spending.

The high fiscal deficit is based on the expectation that the revenue mobilization effort will remain very weak. Coupled with rising current expenditure, due probably to a rapid build-up of debt servicing costs and profligate defence and provincial spending, the fiscal deficit will remain above 6% of the GDP.

The current account deficit is projected to remain between 5 to 6% of the GDP from 2018-19 to 2022-23. The basic reason is that the trade deficit and other outflows will remain high. How Pakistan will be able to meet the external financing requirements on sustained basis has probably not been examined.

The scenario painted by the IMF is not only unsustainable economically but also politically a time bomb waiting to explode with relatively high inflation and rising unemployment.

The major concern is that if the IMF thinks that this is the path Pakistan will follow with the lack of fiscal and monetary discipline in the absence of an IMF Programme, then clearly the quantum of adjustment required will be truly large and to be achieved in a short timeframe in the presence of a Fund Programme. May God please save us.

Perhaps the Ministry of Finance may seek a clarification from the Staff Mission in Pakistan currently as to what is the basis for such gloomy and dire projections of Pakistan’s economy over the next five years. Has the Fund given up on Pakistan? Needless to say, in the scenario painted, it will be well nigh impossible to repay the loan of $6.4 billion already owed to the IMF.

Hafiz A Pasha, "IMF’s dire projections," Business Recorder. 2018-11-14.
Keywords: Economics , Steady growth , Bizarre picture , Country level , Fiscal deficit , External financing , Monetary discipline , WEO , IMF , GDP