External account vulnerabilities: IMF clips growth forecast to 4.7% in 2019

KARACHI: International Monetary Fund (IMF) warned on Tuesday that external account vulnerabilities threaten to clip Pakistan’s economic growth to 4.7 percent next year as compared to a robust 5.6 percent in 2018.

“Pakistan’s economy is expected to expand at a robust pace of 5.6 percent this year (up from 5.3 in 2017), before moderating to 4.7 percent in 2019,” the Washington-based lender said in its latest World Economic Outlook (WEO).

“While the forecast for 2018 is unchanged relative to the October WEO, for 2019, it has been revised down by 1.3 percentage points, partly reflecting an increase in macroeconomic vulnerabilities,” the IMF added the WEO report titled, ‘Cyclical upswing, structural change’. The Fund’s downward growth prospect echoed a report issued last week by the Asian Development Bank (ADB) that expected growth to adjust downward to 5.1 percent during the next fiscal year of 2018/19 as balance-of-payment constraints seem to outweigh improvements to supply-side factors such as better energy supply. “Addressing fiscal and external imbalances and revitalising exports are major challenges for the government now and following national elections,” Manila-based ADB said in the Asian Development Outlook 2018. Pakistan successfully completed a three-year $6.7 billion extended fund facility program of IMF in October 2016. While the bailout package helped the country in redressing its bleeding foreign reserves at that time, the economic reforms introduced by the Fund also supported the economy to get away with the structural weaknesses, especially in energy sector. Pakistan managed to record a decade-high growth of 5.3 percent in 2016/17 and is nearing another signpost of 5.8 percent in the outgoing fiscal year of 2017/18, according to official estimates.

Yet, bilateral and multilateral institutions have been warning of reversal in economic progress imperiled by political instability in the last couple of months. Inconsistency in policies is the biggest fear of businesses in case of any misadventure to derail democratic process. IMF expected consumer price inflation at 5.2 percent next year as compared to five percent in 2018 and 4.1 percent in 2017. The Fund said consumer price inflation averaged 7.5 percent between 2000 and 2009. It remained double-digit in the subsequent three years before coming down to 7.4 percent in 2013. Consumer price inflation ramped to 8.6 percent in 2014 and eased to 4.5 percent in 2015 and 2.9 percent in 2016.

IMF expected current account deficit to ease at 4.4 percent of GDP as compared to 4.8 percent in 2018 and 4.1 percent in 2017. IMF’s unemployment projections for Pakistan are 6.1 percent both for 2018 and 2019, slightly up over six percent in 2017. The Fund said Pakistan’s economy is expected to get growth rate of five percent by 2023. The growth was averaged at 4.7 percent between 2000 to 2009 before slumping to 2.6 percent in 2010. It recovered to 3.6 percent in 2011, 3.8 percent in 2012, 3.7 percent in 2013, 4.1 percent in 2014, 4.1 percent in 2015, and 4.5 percent in 2016.

Average growth projection for Middle East, North Africa, Afghanistan and Pakistan is 3.7 percent in 2019 as compared to 3.4 percent in 2018 and 2.6 percent in 2017. “Growth in the Middle East, North Africa, Afghanistan, and Pakistan region is also expected to pick up in 2018 and 2019, but remains subdued at about 3.5 percent,” the IMF said.