IMF Predicts Pakistan’s Inflation to Be Much Higher in 2023

The International Monetary Fund (IMF) has revised upward the inflation rate for Pakistan, i. e, from 19.9 percent to 21 percent in 2023, attributing the raise to floods and exchange rate depreciation. The IMF officials while briefing media after the launch of the “World Economic Outlook Update,” stated that the focus of the Fund mission in Pakistan would be to restore domestic and external sustainability. Pierre-Olivier Gourinchas, Chief Economist and Director, Research Department IMF stated, “we have an in-person mission that is going to be in Pakistan. And the focus of the mission will be to restore domestic and external sustainability, help the country restore domestic and external sustainability”. Daniel Leigh, Division Chief, Research Department IMF stated that Pakistan’s economy is coming out of a very strong 2022 with 6 percent growth, well above the world average. But in 2023, there is going to be a slowdown, and that’s partly the end of the stimulus that was there from fiscal policy in 2022. That’s going away. And also because of the high inflation, the central bank has increased interest rates, which we see as an appropriate step, 17 percent recently, the interest rates. That’s going to cool domestic demand. And so the lender sees a growth of 2 percent in 2023. Leigh stated, “Unfortunately, we also had to downgrade the forecast growth for Pakistan by one and a half percentage points for 2023. And that’s because of the floods, which was a terrible supply shock, reducing activity and raising inflation, and putting various pressures on the country”. He added that inflation, therefore, went up because of this. “We see inflation reaching about 21 percent in 2023. This is also because of the exchange rate depreciation. And though we do see inflation, thanks to the measures that the authorities are taking, coming down and converging to the five to 7 percent target range by mid-2025. That’s the outlook for Pakistan”.