EDITORIAL: The International Monetary Fund (IMF) in its report titled World Economic Outlook released during the World Bank/IMF annual meeting in Bangkok projected Pakistan’s growth rate for the current year at 3.5 percent, above the global growth rate of 3.4 percent, and lower than the budgeted projection of 4 percent. In marked contrast, however, India is projected to reach a growth of 7 percent.
These projections are dated, made at least three months ago, and may have been based on optimism over the resolution of the Middle East crisis and the Russia-Ukraine conflict – conflicts that are widening with time rather than reaching a diplomatic solution. The Middle East conflict has created fuel shortages with global implications that are raising inflation world-wide. In addition, Western countries, including the United States and Europe, are facing a rise in their bond yields, thereby making it increasingly more expensive for them to secure loans that are required for meeting the costs of war – both in Ukraine and the Middle East for the US and in Ukraine by the Europeans.
The US dollar has been particularly hard hit as the era of the petrodollar is over due to severely constrained oil supplies from the region, a major source of export revenue for the Gulf countries who had agreed to purchase US treasuries with their large annual surplus that enabled the US to borrow money at very cheap rates. At present, Japan and the Gulf countries are increasingly looking to sell their US treasury bonds to meet their liquidity shortages though, to date, the US Treasury Secretary has staved-off some of these demands to sustain the dollar value. How long he will be able to do so remains in question.
Sanctioning Russia’s oil imports has crippled European industry with ongoing de-industrialization leading to inflation and lower growth. The European leadership’s insistence that they would divert their output from civilian products to military output through access to the equity market is raising their bind yields as well.
In this emerging scenario, IMF’s growth projection for Pakistan may be an over-statement on two counts. First, implementing severely contractionary monetary and fiscal policies as well as raising utility prices as part of the extremely rigid upfront ongoing IMF programme – policies that are anti-growth; and secondly, exports to the Middle East are lower than projected as shipping to these countries remains affected, making exports via air quite expensive. While remittance inflows have risen in recent months, due to Pakistanis not opting to return due to the Middle East crisis unlike other nationalities and those who opted to return getting paid a lump sum yet this may not be sustainable, which may increase reliance on more borrowing to fund the budget deficit that is an inflationary policy.
Inflation projection is a high of 9.9 percent, a projection that was surpassed in August at 11.1 percent and 10.3 percent in September. Sadly, the rise in poverty rates, estimated at 44.7 percent by the World Bank, make it a challenge for the government to deal with these poverty levels and there is, therefore, a need for the government to slash its current expenditure that is rising each year accounting for around 93 percent of the total budget outlay.
And finally, unemployment has been projected at 6.5 percent though independent economists place it at a worrisome 22 percent based on the Labour Force Survey uploaded by the Pakistan Bureau of Statistics. There is an urgent need for the government to try to create leverage with the Fund staff and, given the existing geopolitical constraints, there is no other option but to slash current expenditure which would require major sacrifices by the government – to the tune of 2 trillion rupees at least for the next two years; but if achieved it would raise the prospect of the country not requiring the twenty-sixth Fund programme loan after the current one ends.
Copyright Business Recorder, 2026