ISLAMABAD: The International Monetary Fund (IMF) on Tuesday projected economic recession for Pakistan following the coronavirus-related ‘The Great Lockdown’ that would sharply contract the global economy this year.

The fund projected Pakistan’s economy to shrink by 1.5pc during this fiscal year, compared to 3.3pc growth in 2018-19. These estimates are generally comparable with 1.3pc decline in the country’s economic output forecast by the World Bank on Sunday.

“As a result of the pandemic, the global economy is projected to contract sharply by 3pc in 2020, much worse than during the 2008–09 financial crisis,” said the IMF in its annual flagship World Economic Outlook (WEO) released on Tuesday.

“It is very likely that this year the global economy will experience its worst recession since the Great Depression, surpassing that seen during the global financial crisis a decade ago. The Great Lockdown is projected to shrink global growth dramatically,” it said, adding the output loss associated with this health emergency and related containment measures likely dwarfs the losses that triggered the 2008-09 crash.

For FY21, the IMF expects the country’s economy to grow by 2pc amid a global rebound of 5.8pc. Meanwhile, the World Bank had said Pakistan’s growth will remain muted at 0.9pc in 2020-21 before reaching 3.2pc in FY22.

The fund’s estimates suggest almost all the major economies and regions plunging into the negative zone with few exceptions like China and India who would grow by 1.2pc and 1.9pc this year respectively, despite facing massive setbacks. Both these countries are projected to rebound by 9.2pc and 7.4pc respectively.

The IMF forecast Pakistan’s consumer price index rising by 11.1pc this year before easing to 8pc next year. It also estimated the current account deficit at 1.7pc of GDP in 2019-20 which will increase to 2.4pc next fiscal year.

Moreover, the country’s unemployment rate is projected at 4.5pc in FY20 and 5.1pc the next fiscal year.

The fund estimated the economies of the United States and European Union to suffer the most among the developed nations, shrinking by a massive 5.9pc and 7.5pc respectively compared to 1.7pc and 1.2pc growth posted last year.

In a baseline scenario, which assumes that the pandemic fades in the second half of 2020 and containment efforts can be gradually unwound, the global economy is projected to grow by 5.8pc in 2021 as economic activity normalises, helped by policy support.

A partial recovery is projected for 2021, with above trend growth rates, but the level of GDP will remain below the pre-virus trend, with considerable uncertainty about the strength of the rebound.

Much worse growth outcomes are possible and maybe even likely. This would follow if the pandemic and containment measures last longer, emerging and developing economies are even more severely hit, tight financial conditions persist, or if widespread scarring effects emerge due to firm closures and extended unemployment, the WEO noted.

The IMF also emphasised the need for strong multilateral cooperation to overcome the effects of the pandemic, including to help financially constrained countries facing twin health and funding shocks, and for channeling aid to countries with weak health care systems.

Debt relief

Meanwhile, the IMF has approved immediate debt service relief for 25 countries to help them address the impact of Covid-19.

The grants come from the IMF’s revamped Catastrophe Containment and Relief Trust (CCRT), which has been set up to assist member states deal with the pandemic which it says will have a devastating impact on emerging markets.

More than 90 countries, including Pakistan, are seeking financial lifelines as the deadly virus continues to spread across the globe.

Published in Dawn, April 15th, 2020