A senior economist with Moody’s Analytics informed that inflation in Pakistan may average 33% during the first half of 2023 before easing. According to the economist, relying solely on a bailout from the International Monetary Fund (IMF) may not suffice in restoring the economy.
“What the economy truly requires is consistent and effective economic management,” said senior economist Katrina Ell. She further added that “we’re anticipating continued fiscal and monetary austerity well into 2024” and that despite ongoing negotiations, Pakistan is in urgent need of funds to address its severe economic crisis.
If an agreement is reached on the ninth review of the program, Pakistan could receive more than $1.1 billion out of the total $2.5 billion pending under the current package agreed upon in 2019.
The economy heavily relies on these funds, as its foreign exchange reserves only cover about 18 days’ worth of imports. However, inflation remains high, averaging about 33% during the first half of 2023 and then possibly declining slightly, according to senior economist Katrina Ell.
The Consumer Price Index rose by 27.5% YoY in January, its highest level in almost 50 years, and low-income households are expected to be hit hard due to higher prices of non-discretionary items. “Food prices are high, and they can’t avoid paying for that, so we’re going to see higher poverty rates as well feed through,” Ell said.
According to senior economist Katrina Ell, simply infusing additional funds through an IMF bailout may not be sufficient in helping Pakistan overcome its economic struggles. Given Pakistan’s track record with IMF bailouts, Ell believes that any improvement in the economy will be gradual and there is no quick solution. .
Despite the recent increase in the central bank’s key interest rate by 100 basis points to 17%, the weaker rupee, high energy costs, and elevated food prices are likely to keep inflation high. As a result, Moody’s expects economic growth for the 2023 calendar year to be around 2.1%. Further monetary tightening is likely to be seen in Pakistan to stabilize inflation, but it may not be a silver bullet. “You really need to see sustained sound macroeconomic management, and just injecting further funds in there without decent backing is not going to deliver the results that you’re looking for,” Ell said.