IMF bearish, SBP bullish

SBP disputes IMF outlook, projecting stronger growth amid default recovery concerns

The SBP governor has pushed back on the IMF's latest projections for Pakistan, which show that economic growth may be slowing. The central bank chief went in the other direction, insisting in a recent interview that GDP will grow even more than previously projected.

While we trust that both estimates were based on reliable information, it is almost unheard of to have such stark differences in a growth estimate, since the basic data used in the equation is usually similar, if not identical. This is why the disagreement is more a matter of interpretation. The IMF seems to be factoring in lingering flood assessments and global headwinds as part of its trimmed outlook.

The SBP governor, however, sees a "broad-based recovery" already taking root. He points to first-quarter figures showing agriculture exceeding targets and large-scale manufacturing up 6% between July and November. He credited monetary easing over the past two years for these improvements, and the SBP's ongoing interest rate policies suggest that he genuinely believes steady growth is still ahead of us.

And as for negative indicators, such as exports contracting in the first half, the SBP chief blamed border disruptions and soft commodity prices, while underscoring that the fundamentals remain strong, citing robust remittances and control over the current account deficit. In fact, reserves are projected to hit $18 billion by June, bolstered by dollar purchases and upcoming Panda bond issuances.

However, optimism must be anchored by reality, and the reality is that Pakistan was on the brink of default until the IMF bailed us out with a $7 billion loan. History also shows that previous growth spurts have ended with currency collapses and evaporating foreign reserves.

Notably, the SBP held interest rates at 10.5% last month, defying market expectations of a cut. The decision suggests the bank is worried about letting the economy overheat and repeating the same cycle. It is thus a matter of balancing optimism with prudence to ensure growth is sustainable.