IMF conveniently ignores devastation wrought by floods

ISLAMABAD: The International Monetary Fund (IMF) has projected 3.5 percent GDP growth for the current fiscal year against the budgeted 5 percent.

The Fund report – combined seventh, and eighth reviews of the Extended Arrangement under the Extended Fund Facility (EFF) – uploaded on Friday did not take note of the devastating floods that have inundated one third of the country with 33 million displaced.

The IMF further noted that the pass-through of energy prices will have some dampening effect on activity while fiscal consolidation and the loss of purchasing power due to high inflation are expected to restrain domestic demand notably.

Headline inflation – CPI – is projected by the Fund at 19.9 percent for the current fiscal as international commodity prices are passed on to domestic consumers against the budgeted projection of 11.5 percent. Core inflation is also projected to remain elevated due to higher energy prices and sizable depreciation. With tighter monetary and fiscal policies firmly entrenched, inflation is expected to fall significantly in fiscal year 2024, supported by favorable base effects and fiscal deficit at 4.6 percent.

The current account deficit is projected to narrow to 2.5 percent for the current fiscal year against 4.7 percent of a year before, reflecting monetary, fiscal, energy policies consistent with moving demand to sustainable levels, and supported by the continued commitment to a market-determined exchange rate.

IMF, floods & economy

Debt is projected at 72.1 percent as opposed to 78.9 percent for the last fiscal year and external debt is projected to increase to 37 percent of the GDP in fiscal year 2023 from 32.5 percent in 2021-22 reflecting heavy reliance on external borrowing.

The IMF added that the amendments to the Fiscal Responsibility and Debt Limitation Act, supported by World Bank and IMF TA and signed into law in June 2022 after National Assembly passage, will institutionalize the establishment of a central Debt Management Office (DMO).

This would empower the DMO to implement the agreed medium-term debt management strategy (MTDS), which will be updated annually. Gross official reserves are projected at $16.2 billion for the current fiscal year.

The Fund warned that social unrest fuelled by increasing prices and shortages of essentials, rising inequality, inadequate healthcare, financial and social scars from the prolonged pandemic, and heavier household debt burdens amid rising interest rates may trigger political instability, capital outflows, higher unemployment, and slower economic growth.

Copyright Business Recorder, 2022