Inflation is projected to undershoot the 2-per cent target this year, but return to target thereafter, IMF said after its executive board concluded the Article IV Consultation for the country for this year.

While positive growth surprises are possible if stronger fiscal performance were to crowd in higher private investment, growth could be adversely affected by an intensification of regional conflicts, sharp slowdowns in major trading partners, deepening geo-economic fragmentation and significantly higher-than-expected interest rates that could revive concerns about sovereign-bank-corporate linkages, the IMF said in a release.

Incomplete National Recovery and Resilience Plan (NRRP) spending and implementing reforms would also weaken growth, while still-large fiscal deficits could erode investor confidence, further weakening public finances, it noted.

IMF directors noted that despite the recovery, fiscal deficits are much larger than the pre-COVID era, and with rising latent spending pressures, public debt and financing needs would remain very high.

They underscored the need to raise productivity and boost the supply of skilled labour.

They also recommended deepening capital markets and cautioned that industrial policy be used selectively to correct market failures.

Fibre2Fashion News Desk (DS)