February 01, 2023 (MLN): Pakistan will witness an economic slowdown throughout 2023, and that is partly the end of the stimulus that was there from fiscal policy in 2022, the International Monetary Fund (IMF) Chief Economist Pierre-Olivier Gourinchas said at a press conference on Tuesday.
Pakistan's economy is coming out of a very strong 2022 with 6% growth, well above the world average, he added.
“The country is also suffering from the high inflation and as a result, the central bank has increased interest rates to 17% which we see as an appropriate step,” he noted.
While appreciating the step, he said, “That's going to cool domestic demand. And so, we see a growth of 2% in 2023. Unfortunately, we also had to downgrade the growth of forecast for Pakistan by one and a half percentage points for 2023.”
Adding more fuel to the fire, the recent floods were a terrible supply shock that has reduced economic activity while increasing inflation.
In this regard, the fund expects inflation in Pakistan to reach around 21% in 2023. Meanwhile, PKR devaluation will also fuel inflation.
Though inflation is peaking the measures taken by the authorities will help tame inflation which would converge to the 5%-7% target range by mid-2025.