The International Monetary Fund (IMF) has said that high inflation and tighter global financial conditions would continue to weigh on Pakistan’s economy, pressuring its exchange rate and external stability.
The observations were part of the IMF’s country report released the other day.
It cautioned that high food and fuel prices could trigger protests and instability, which could, in turn, jeopardise macro financial and external stability and debt sustainability. It said the average consumer price index (CPI) inflation was expected to surge to 20 per cent in the current financial year, while core inflation would also remain elevated due to higher energy prices and the rupee’s decline.
The IMF said risks to Pakistan’s economic outlook and implementation of the programme
remained “high and tilted to the downside” because of what it termed a “very complex”
domestic and external environment.
“Spillovers from the war in Ukraine through high food and fuel prices, and tighter global
financial conditions will continue to weigh on Pakistan’s economy… Policy slippages remain a risk, as evident in FY22, amplified by weak capacity and powerful vested interests, with the timing of elections uncertain given the complex political setting,” it said.
“Sociopolitical pressures are expected to remain high and could also weigh on policy and
reform implementation, especially given the tenuous political coalition and their slim majority in parliament,” the report added.
In addition, higher interest rates, a larger-than-expected growth slowdown, pressures on the exchange rate, renewed policy reversals, weaker medium-term growth, contingent liabilities related to state-owned enterprises and climate change were termed as substantial risks by the lender.