IMF projects GDP flat at two percent

Pakistan's gross domestic product (GDP) growth is expected to remain unchanged at 2 percent in the 2009/10 fiscal year, the International Monetary Fund (IMF) said. The government's GDP growth target for this July-June fiscal year is 3.3 percent. GDP growth is expected to rise to 3 percent in the 2010/2011 fiscal year, the IMF said in its Regional Economic Outlook posted on its website (www.imf.org).
Pakistani growth was 5.6 percent in the 2007/08 fiscal year but it slowed to 2 percent the following year because of macroeconomic imbalances, deteriorating law and order and an uncertain political scene. "In Pakistan, the economic slowdown began before the global crisis," the IMF said.
The US ally which is fighting a Taliban insurgency was kept afloat by a $7.6 billion IMF emergency loan last November. The loan was increased to $11.3 billion in July. The IMF pro jected inflation this fiscal year to be 13.9 percent, compared with 20.3 percent last year. The government has an inflation target of 9.5 percent. The IMF has projected inflation to ease to 9.4 percent in the 2010/11 fiscal year.
According to official data, average inflation from July to September rose 10.66 percent from a year earlier, compared with 24.52 percent in the same period last year. Inflation for September was up 10.12 percent from a year earlier compared with August's inflation which rose 10.69 percent year-on-year.
The central bank, which pursued a tight monetary policy in the 2008 calendar year by raising the key policy rate by 500 basis points to control inflation, eased it this year, cutting the policy rate by a 100 basis points in April, then again in August.
The State Bank of Pakistan has kept its policy rate unchanged at 13 percent for October and November. "Looking forward, further rate cuts will need to be contemplated carefully, given exchange rate arrangements, reserve positions, and still high rates of inflation ... and rising commodity prices in world markets," the IMF said. The IMF and the government have projected the fiscal deficit to narrow to 4.9 percent of GDP this fiscal year as compared with 7.3 percent of GDP in the last fiscal year.