Pakistan is in dire need of funds as it battles a wrenching economic crisis
\n ISLAMABAD
\nInflation in Pakistan could average 33% in the first half of 2023 before trending lower, and a bailout from the International Monetary Fund alone is unlikely to put the economy back on track, a senior economist with Moody\u2019s Analytics told Reuters.
\n\u201cOur view is that an IMF bailout alone isn\u2019t going to be enough to get the economy back on track. What the economy really needs is persistent and sound economic management,\u201d senior economist Katrina Ell said in an interview on Wednesday.
\n\u201cThere\u2019s still an inevitably tough journey ahead. We\u2019re expecting fiscal and monetary austerity to continue well into 2024,\u201d she added.
\nPakistan government and the IMF could not reach a deal last week and a visiting IMF delegation departed Islamabad after 10 days of talks, but said negotiations would continue. Pakistan is in dire need of funds as it battles a wrenching economic crisis.
\nAn agreement on the ninth review of the programme would release over $1.1 billion of the total $2.5 billion pending as part of the current package agreed in 2019 which ends on June 30. The funds are crucial for the economy whose current foreign exchange reserves barely cover 18 days worth of imports.
\n\u201cEven though the economy is in a deep recession, inflation is incredibly high as (result of) part of the latest bailout conditions,\u201d Ell said.
\n\u201cSo what we\u2019re expecting is that through the first half of this year, inflation is going to average about 33% and then might trend a little bit lower after that,\u201d she added.
\nThe consumer price index rose 27.5% year-on-year in January, its highest in nearly half a century.
\nLow income households could remain under extreme pressure as a result of high inflation on account of being disproportionately exposed to non-discretionary items.
\n\u201cFood prices are high and they can\u2019t avoid paying for that, so we\u2019re going to see higher poverty rates as well feed through,\u201d the economist said.
\nNo overnight fix
\nEll said Pakistan has not has a great track record when it comes to IMF bailouts, so infusing additional funds alone may prove to be of little use.
\n\u201cIf we\u2019re going to see any improvement, it\u2019s going to be very gradual. There\u2019s just no overnight fix,\u201d she said.
\nThe weaker rupee, which is plumbing record lows, is adding to imported inflation while domestically high energy costs on the back of tariff increases and still elevated food prices is likely to keep inflation high.
\nMoody\u2019s expects economic growth for the 2023 calendar year of around 2.1%.
\n\u201cIt is likely that we will see further monetary tightening in Pakistan to try and stabilise inflation and also with the weakness in the FX they might kind of intervene there to try and force in stability, but again it\u2019s not going to be a silver bullet,\u201d Ell said.
\nLast month, the central bank raised its key interest rate by 100 basis points (bps) to 17% in a bid to rein in persistent price pressures. It has raised the key rate by a total of 725 bps since January 2022.
\nWith significant recession-type conditions in Pakistan, skyrocketing borrowing costs could really exacerbate domestic demand struggles, she said.
\n\u201cYou really need to see sustained sound macroeconomic management, and just injecting further funds in there without decent backing is not going to deliver the results that you\u2019re looking for.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"
Pakistan is in dire need of funds as it battles a wrenching economic crisis ISLAMABAD Inflation in Pakistan could average 33% in the first half of 2023 before trending lower, and a bailout from the International Monetary Fund alone is unlikely to put the economy back on track, a senior economist with Moody\u2019s Analytics told […]<\/p>\n","protected":false},"author":2,"featured_media":246004,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[5],"tags":[],"class_list":{"0":"post-314072","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-business"},"yoast_head":"\n