IMF further slashes Pakistan’s GDP growth forecast

[Naveed Yaseen]

By Sajid Chaudhry

ISLAMABAD: International Monetary Fund (IMF) has further slashed the GDP growth rate of Pakistan to 3.5 percent-which was 4 percent earlier-in next fiscal year 2009-10 owing to deepest post-World War II recession.

IMF in its April 2009 report World Economic Outlook 2009 titled Crisis and Recovery, has highlighted that Pakistan's real Gross Domestic Product (GDP) growth was recorded at 6 percent in last two years 2007 and 2008 and real GDP growth for 2009 would remain at projected level of 2.5 percent.

Earlier the IMF authorities had projected the Pakistan's real GDP to post a growth of 4 percent, however, in its latest report of April 2009, the authorities have further lowered the growth forecast to 3.5 percent for 2009-10.

World Economic Outlook 2009 projections relating to Current Account Balance have also been revised upwards keeping in view the internal as well as external factors has now projected that current account balance to remain at negative 4.9 percent in 2009-10 as against earlier projection of negative 4.3 percent.

The report states that current account balance of the country was recorded at negative 4.8 percent in 2007, negative 8.4 percent in 2008 and expectation is there that it would remain at negative 5.9 percent in current fiscal year 2008-09.

Trend in movement of consumer prices as projected in World Economic Outlook 2009 is similar to earlier projections according to which upward movement in consumer prices was recorded at 7.8 percent in 2007, 12 percent in 2008 and 20 percent in 2009. However, the report forecasts that movement in consumer prices to come down to 6 percent in 2009-10 as against 20 percent in current fiscal year 2008-09.

Outlook and Risks: The World Economic Outlook (WEO) projections assume that ?nancial market stabilisation will take longer than previously envisaged, even with strong efforts by policymakers.

The projections also assume that commodity prices remain close to current levels in 2009 and rise only modestly in 2010, consistent with forward market pricing. Even with determined policy actions, and anticipating a moderation in the rate of contraction from the second quarter onward, global activity is now projected to decline 1.3 percent in 2009, a substantial downward revision from the January WEO Update. This would represent by far the deepest post-World War II recession. The current outlook is exceptionally uncertain, with risks weighed to the downside.

The dominant concern is that policies will continue to be insufficient to arrest the negative feedback between deteriorating ?nancial conditions and weakening economies, particularly in the face of limited public support for policy action. Key transmission channels include rising corporate and household defaults that cause further falls in asset prices and greater losses across financial balance sheets, and new systemic events that further complicate the task of restoring credibility.

Furthermore, in a highly uncertain context, ?scal and monetary policies may fail to gain traction, since high rates of precautionary saving could lower ? scale multipliers, and steps to ease funding could fail to slow the pace of deleveraging. On the upside, however, bold policy implementation that is able to convince markets that financial strains are being dealt with decisively could revive con?dence and spending commitments.

http://www.dailytimes.com.pk/default.asp...2009_pg5_1