In its latest report, “Regional Economic Outlook, Navigating the Evolving Geo-economic Landscape” the International Monetary Fund has said that economies in the Middle East and North Africa (MENA) region and Pakistan face formidable challenges amid global geo-economic fragmentation, conflicts, and climate-related shocks.

Elaborating, the Fund has stated that MENA oil importers and Pakistan continue to grapple with conflicts, uncertainty, and high gross financing needs. It foresees that as the situation improves and oil prices ease, near-term growth will recover from 1.5 percent in 2024 to 3.9 percent in 2025. But structural issues will hold back productivity growth in some economies.

The IMF has also mentioned individual states in the region and highlighted the specific problems they face. According to the IMF, “the pace of reform has slowed, and there remains room for improvement, including in liberalising interest rates (Egypt, Morocco, Oman, Pakistan), expanding private sector ownership in the banking sector (Algeria, Egypt, GCC countries, Morocco, Tunisia), and developing capital markets. However, average growth in the MENA region is projected to remain sluggish at 2.1 percent in 2024, before accelerating to 4 percent next year.

For MENA, Emerging Market and Middle-Income Economies (EM&MIs) and Pakistan, growth is projected to slow to 2.4 percent in 2024 before strengthening to 3.6 percent in 2025 and further improve modestly over the medium term as existing issues gradually subside and reform implementation takes hold. Positive outlooks for Morocco and Pakistan are based on the normalisation of agricultural output and an improvement in the industrial and service sectors.

The IMF’s prognosis is that structural reforms and official financing will help increase gross foreign reserves in some countries, including Egypt, Jordan, Morocco, and Pakistan. Elsewhere, for countries grappling with persistently elevated inflation such as Egypt, Kazakhstan, Pakistan, Tunisia, and Uzbekistan, monetary policy should remain tight.

In another report, the IMF has forecast Pakistan’s economy to grow by 3.2 per cent during the current fiscal year, falling short of the government’s budget target. This growth rate is expected to be accompanied by a single-digit inflation rate of 9.5pc and a current account deficit nearing 1pc. In its World Economic Outlook (October 2024) released last week the IMF also estimated global economic growth to stabilise at 3.2pc after “winning the battle against inflation”, despite ongoing risks related to regional conflicts, a slowdown in China, and the lasting effects of tight monetary policies and financial market volatility.

It may be mentioned here that the IMF recently approved a $7 billion bailout for Pakistan as a consequence of which it expects the country’s growth rate to gradually improve to 4.5pc by 2029. In contrast, both the World Bank and Asian Development Bank project Pakistan’s growth rate for the current fiscal year at 2.8pc and inflation at the higher side of 10pc. The WEO forecasts Pakistan’s inflation, measured by the Consumer Price Index, at 9.5pc for the current year, decreasing to 6.5pc by 2029, down from 23.4pc in 2024. The current account deficit is expected to remain flat at 0.9pc of GDP this year and in 2029, compared to a low of 0.2pc last year.

The good news is that the IMF projects the unemployment rate in Pakistan to decline to 7.5pc next year from 8pc in the current year, though it did not explain how these figures were determined, given that Pakistan’s last labour force survey was conducted in FY21. The WEO expected global growth to remain stable yet subdued at 3.2pc in 2024 and 2025, virtually unchanged from July 2024 estimates. Notable revisions include upgrades for the United States that offset downgrades for other advanced economies.

On the downside in emerging markets and developing economies, disruptions in production and shipping of commodities — especially oil — along with civil unrest, and extreme weather events have led to downward revisions for the outlook in the Middle East as well as Central Asia, and Sub-Saharan Africa. These declines have been partially offset by positive forecasts for emerging Asia, where strong demand for semiconductors and electronics, driven by significant investments in artificial intelligence, has spurred growth.

The overall outlook for the global economy remains cloudy due to policy gaps and uncertainty in many countries. The risks include debt stress and sudden surges in financial market volatility — similar to those experienced in early August — which could tighten financial conditions and impact investment and growth, particularly in developing economies with large near-term external financing needs. An example of this is Pakistan. The IMF has also warned about possible disruptions to the disinflation process instigated by new spikes in commodity prices due to persistent geopolitical tensions, central banks’ inability to ease monetary policy which would pose significant challenges to fiscal policy and financial stability.

Another danger is prolonged contraction in China’s property sector, especially if it results in financial instability. This will weaken consumer sentiment and create negative global spillovers given China’s significant role in global trade. Further, protectionist policies could heighten trade tensions, reduce market efficiency, and further disrupt supply chains. In a nutshell, it is all touch and go for both the developed and developing economies in the days ahead.