The International Monetary Fund (IMF) on Tuesday warned that the worst was yet to come as it further cut its projection for global economic growth to minus 2 per cent amid persistently increasing inflation.
According to Dawn, the global lender of last resort projected Pakistan’s GDP growth rate at 3.5 per cent and inflation at about 20 per cent in its World Economic Outlook (WEO) 2023 – Countering the Cost-of-Living Crisis with the caveat that “the 2022 projections for Pakistan are based on information available as of the end of August and do not include the impact of the recent floods.”
The fund forecasted Pakistan’s current account deficit at 2.5 per cent of GDP for the current fiscal year, down from 4.6 per cent last year, and the unemployment rate at 6.4 per cent on the same basis. Therefore, all of these projections are based on dated information that has drastically changed over the past two weeks.
The Asian Development Bank estimated Pakistan’s growth rate to be 3.5 per cent late last month, compared to the World Bank’s projection of 2 per cent last week.
According to the IMF, its projections call for global growth to decline from 6 per cent in 2021 to 3.2 per cent in 2022 and then further to 2.7 per cent in 2023, which is 0.2 per cent below the July forecast, with a 25 per cent chance that it will dip below 2 per cent.
The three greatest economies—the United States, the European Union, and China—will continue to stagnate, while more than one-third of the world economy will contract this year or the following year. It said that Russia’s invasion of Ukraine was still seriously destabilising the world economy and that “in short, the worst is yet to come.”
The fund urged international decision-makers to maintain their composure while storm clouds formed. It blamed the lasting consequences of three strong forces—the Russian invasion of Ukraine, a cost-of-living crisis brought on by persistent and expanding inflation pressures, and the downturn in China—for the severe economic challenges the world economy is currently facing.
According to the WEO, worldwide inflation would increase from 4.7 per cent in 2021 to 8.8 per cent in 2022 before falling to 6.5 per cent in 2023 and 4.1 per cent by 2024. With more variation in emerging markets and developing nations, upside inflation shocks have been most common in advanced economies.
The fund recommended emerging market officials to batten down the hatches right away. IMF access to preventative instruments should be urgently considered by eligible nations with strong policies who want to increase their liquidity reserves.
As too many low-income countries were in or on the verge of debt distress, the countries should also try to reduce the effects of upcoming financial instability by a combination of preventative macroprudential and capital flow measures, where appropriate.
The IMF stated that in order to prevent a wave of sovereign debt crises, the Group of Twenty’s Common Framework’s progress toward orderly debt restructurings for the most impacted was urgently required. Time could be rapidly running out.
