ISLAMABAD: The International Monetary Fund (IMF) on Wednesday lowered Pakistan’s growth forecast by half to one per cent for the next fiscal year as the global economy appears to have suffered greater setbacks following the Covid-19 pandemic and shows slower signs of recovery than previously anticipated.

On April 14, the IMF had estimated Pakistan’s GDP going negative 1.5pc in the fiscal year 2019-20 and a 2pc growth rate for FY2020-21 in its flagship World Economic Outlook (WEO). The Fund now revised its forecast to -0.4pc for the current fiscal in line with the government’s estimates.

However, as part of its WEO update released on Wednesday, the IMF also revised downward its next year’s growth forecast to 1pc from 2pc in April update and the Pakistan government’s target of 2.1pc set for the next fiscal year.

The IMF said the global growth was now projected at -4.9pc in 2020, 1.9 percentage points below the April 2020 WEO forecast. Consumption growth, in particular, has been downgraded for most economies, reflecting the larger-than-anticipated disruption to domestic activity.

Global economy shows slower signs of recovery than previously anticipated

The projections of weaker private consumption reflect a combination of a large adverse aggregate demand shock from social distancing and lockdowns, as well as a rise in precautionary savings. Moreover, investment is expected to be subdued as firms defer capital expenditures amid high uncertainty.

In the baseline, global activity is expected to trough in the second quarter of 2020, recovering thereafter. In 2021, growth is projected to strengthen to 5.4pc, 0.4 percentage point lower than the April forecast. Consumption is projected to strengthen gradually next year, and investment is also expected to firm up, but to remain subdued.

The IMF said there was still pervasive uncertainty around this forecast that depended on the depth of contraction in the second quarter of 2020 (for which complete data is not yet available) as well as the magnitude and persistence of the adverse shock.

For economies struggling to control infection rates, a lengthier lockdown will inflict an additional toll on activity. Moreover, the forecast assumes that financial conditions — which have eased following the release of the April 2020 WEO — will remain broadly at current levels. Alternative outcomes to those in the baseline are clearly possible, and not just because of how the pandemic is evolving.

Data releases since April suggest even deeper downturns than previously projected for several economies. The pandemic has worsened in many countries and leveled off in others. The pandemic has rapidly intensified in a number of emerging markets and developing economies, necessitating stringent lockdowns and resulting in even larger disruptions to activity than forecast. In others, recorded infections and mortality have instead been more modest on a per capita basis, although limited testing implies considerable uncertainty about the path of the pandemic.

In many advanced economies, the pace of new infections and hospital intensive care occupancy rates have declined, thanks to weeks of lockdowns and voluntary distancing. The data said the deep downturn was synchronised as first-quarter GDP was generally worse than expected — the few exceptions were Chile, China, India, Malaysia and Thailand, among emerging markets, and Australia, Germany and Japan, among advanced economies. High-frequency indicators point to a more severe contraction in the second quarter, except in China, where most of the countries had reopened by early April.

The IMF said the strong multilateral cooperation remained essential on multiple fronts. Liquidity assistance was urgently needed for countries confronting health crises and external funding shortfalls, including through debt relief and financing through the global financial safety net.

Beyond the pandemic, policymakers must cooperate to resolve trade and technology tensions that endanger an eventual recovery from the Covid-19 crisis. Furthermore, building on the record drop in greenhouse gas emissions during the pandemic, policymakers should both implement their climate change mitigation commitments and work together to scale up equitably designed carbon taxation or equivalent schemes.

The IMF said the global community must act now to avoid a repeat of this catastrophe by building global stockpiles of essential supplies and protective equipment, funding research and supporting public health systems, and putting in place effective modalities for delivering relief to the neediest.

Published in Dawn, June 25th, 2020