Pakistan's GDP growth expected to remain weak, S&P Global warns

June 31, 2024 (MLN): S&P Global Ratings has projected Pakistan’s Gross Domestic Product (GDP) growth rate to remain subdued over the next three years.

The global rating agency expects Pakistan’s economy to grow 3.5% in fiscal year 2024-25 from 2.4% in the previous year that ended in June.

That compares with the government’s target of 3.6% and the State Bank of Pakistan’s forecast of 2.5% to 3.5%.

However, the rating agency expects growth to remain subdued at 3.3% for both FY26 and FY27.

Tight domestic monetary conditions and persisting inflationary pressures will continue to weigh on growth, which will be about 3.5% in fiscal year 2025, it said on Tuesday while affirming Pakistan's rating at 'CCC+'.

The government's reform efforts will face volatile social and political resistance toward austerity and tax-enhancing measures, it added.

Pakistan's economy grew 2.4% in fiscal 2024, having recovered from the impact of severe floods.

Agriculture--a critical sector accounting for 25% of economic output--recovered due to improved crop yields.

This was counterbalanced by underwhelming industry and services growth.

GDP growth will remain modest in the current fiscal year at 3.5%, it said, as elevated prices and daunting reform measures will weigh on economic activities; prices are gradually declining, however.

The Pakistani rupee's depreciation against the US dollar in recent years has also contributed to a sustained stagnation in the country's nominal GDP per capita.

Coupled with lower real GDP growth expectations, the rating agency forecasts GDP per capita to stabilize just below $1,700 in fiscal 2026.

To note, the government successfully completed the Stand-By-Arrangement (SBA) with the IMF in April 2024. Disbursements under the SBA, which began in July 2023, totaled approximately $3.0 billion.

The IMF disbursement, in addition to new deposits from bilateral partners, has helped to rebuild Pakistan's liquid foreign exchange reserves from critical lows early last year.

Pakistan and the IMF have since reached a new Staff Level Agreement (SLA) on a 37-month Extended Fund Facility (EFF) announced on July 12, 2024.

The financial support under the EFF will be $7bn, which is currently subject to approval of the IMF board.

The performance requirements of this program are a continuation and extension of those set in the SBA.

Meeting the EFF conditions will be critical for Pakistan to receive the disbursements in the coming quarters, the rating agency noted.

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