Pakistan Reader# 234, 20 October 2021
On 13 October, International Monetary Fund released a report titled “World Economic Outlook; Recovery During a Pandemic; Health Concerns, Supply Disruptions, and Price Pressures October 2021”. The report mentions an improved near medium-term growth rate for the global economy compared to figures predating pandemic. Despite supply disruptions, advanced economies to chart prospective growth rate due to timely policy framework. For emerging economies worsening pandemic dynamics due to automation and transformation of workplace will reap gains as well along with subdued employment rates. The future of countries is bleak but with a bullish market led by timely policy response by the USA in policy response to economic output. However, there are fears of monetary normalisation are a possibility due to continuing inflation trends and price pressures.
The GDP growth rate at constant prices of Pakistan for the year 2021 has been predicted at 3.943 per cent which was negative for the year 2020. The inflation is estimated to cool down but will remain above the recommended limits as desired by policy objectives. However, the report does not provide any estimate of GDP at current prices (in USD) for the year 2021 and beyond possibly due to the volatile depreciation of Pakistan Rupee (PKR) in the year 2021. The GDP figures in domestic currency are projected although the GDP for the year 2026 has been estimated around PKR 86,329 billion (equivalent to USD 512 billion at current exchange rate), the domestic currency estimates are provided by the representative country subject to verification by the IMF.
The improvement in growth rate will inevitably give breathing space to general gross government debt, and hence is estimated to be improving over the years, the gross debt as per the report, stands at 85.3 per cent of the GDP while for the year 2026 the gross debt is predicted to stand somewhere around 63.64 per cent of the GDP. A large portion of the gross debt is domestic hence the above-mentioned improvement is dependent on the internal political stability and fiscal health as well as better revenue capture in Pakistan.
On the front of the Consumer Price Index (CPI), there is no breathing space for a common man, the index is estimated to stand around 141 units for a standard consumer basket for the year 2021 in the current reference period, the CPI is estimated to be around 199.2 units for the year 2026. In 2019 the CPI stood at 117.7, the CPI assault in recent years can be gauged from the fact that PKR was devalued and now reaching real levels due to price pressures induced by pandemic.
On the labour front, the unemployment rate as per cent of unemployed people out of available and accounted labour force will remain stagnant and shows no signs of improvement up to 2026. The unemployment rate stands at five per cent of total labour force for the year 2021. The report cites a recent report by the International Labour Organisation in explaining that the average working hours have declined due to automation especially in labour-intensive industries of Asia. The current account balance which has reduced to negative 0.61 per cent of GDP in the current year is again estimated to tread into larger negative figures as per cent of GDP, by the year 2026 the current account balance is estimated to be around negative 2.804 per cent of the GDP. Overall, the report has kept Pakistan in the category of emerging market and developing economies where it remains a net debtor or net external creditor.
Similar reports by World Bank and Asian Development Bank
Another report by WB estimated Pakistan GDP to grow by 3.4 per cent for the year 2021 and to remain stagnant subject to policy measures introduced to deal with boosting domestic productivity, increasing exports, incentivising foreign investors, restructuring the tax system and tackling energy-sector debt. Asian Development Bank, however, has projected the same growth rate estimated by the IMF for the financial year 2021-22. The fiscal deficit is projected to narrow to the equivalent of 6.9 per cent of the GDP in FY22, which is still higher than the target set earlier under a medium-term fiscal consolidation program supported by the IMF.
What does the report mean?
The WEO report recommends some policy measures in the context of pandemic, there are targets set for vaccinating a share of the population to absorb any uncertain new viral outbreaks of the covid variants. It also recommends larger fiscal space for health research and expenditure to escape localised pandemic effects. The report intends to acknowledge the supply demand mismatch and disruptions caused due to price pressures induced by pandemic, however, it is a forward looking, at least in medium term trends of global growth. Another takeaway from the report is predictions on growth of low-income developing countries, such categorical countries are expected to grow at 3.0 in 2021 from the 0.1 per cent growth in 2020 and are estimated to grow at 5.3 per cent principally due to commodity exporting emerging markets of these developing economies. There is also a perception of monetary normalisation due to persistent high inflation all across the world.
IMF Staff, "World Economic Outlook, October 2021," International Monetary Fund, 13 October 2021
Khaleeq Kiani, "IMF forecasts Pakistan's growth rate at 4 PC," Dawn, 13 October 2021
Amin Ahmed, " ADB projects Pakistan's economy to grow by 4 PC in FY22,", Dawn, 22 September 2021
"Bleak Economic View," Dawn, 9 October 2021