Gloomy IMF report

Pakistan’s economy could return to a 5% growth rate within a few years with the right policy reforms and adequate investment, according to the IMF’s latest country report. The summary is sombre, to say the least. While politicians and some in the business community are celebrating the latest round of IMF and other foreign financing, despite all the reforms and strings attached to the funding, even the optimistic projection of our turnaround is less impressive than Bangladesh or India’s current growth rates. To put it another way, for all the pain and suffering that the Pakistanis have put up with in the recent past, the best-case scenario is third place in the region. It is even worse for the current fiscal year, with a projected growth rate of 2.5%, contingent on IMF conditions being met. This figure is even less impressive if we consider that the one-time impact of post-flood recovery would also register as growth.

The IMF has also noted that it will take a while to reverse the impact on growth that import reduction measures have had, although the removal of restrictions is unpopular in some circles since the decision was a rarity for Pakistani planners — one that actually achieved its intended goal. But this was always a non-starter for the IMF, which has demanded a free-floating currency exchange and removal of almost all import restrictions as a condition for every country taking its money. Inflation is expected to decrease, but “only very gradually” with the rate for the current fiscal year projected to remain above 25%. The IMF believes it will take at least another year for inflation to return to single digits.

And in a worrying twist, the report says the government needs to balance the budget, but also increase spending on social services — the same services that have seen cuts to reduce the budget deficit — because Pakistan is now well behind its peers’ level of socioeconomic development. The solution to our economic problems thus seems to be the exact thing that created them — spending money that we don’t have.

Published in The Express Tribune, July 20^th, 2023.

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