July 19, 2023 (MLN): Pakistan’s economic growth in the fiscal year 2023 remained lower than expected due to tight monetary and fiscal policies, high inflation, and severe flooding, according to the Asian Development Outlook (ADO) issued by Asian Development Bank (ADB) on Wednesday.
The report stated that Pakistan’s growth in 2023 was weighed down by tighter monetary and fiscal policies to safeguard macroeconomic stability, pervasive inflation, and significant damage from flooding.
However, for FY24, the report maintained the GDP forecasts for Pakistan.
The April 2023 projection for Pakistan in FY24 assumes that the government will continue reforms as recommended by the IMF under a new policy-support program approved on July 12.
In FY23, tighter monetary policy drove up interest rates, and fuel prices. Additionally, import restrictions were imposed to manage declining foreign exchange reserves.
Pervasive inflation and significant damage from flooding were the factors that weighed on Pakistan’s economic activity in 2023, the document added.
Actual inflation in Pakistan in FY23 was higher than projected, leaving the subregional forecast unchanged.
Continued demand-side pressures in Pakistan play an outsized role in the upward revision to the subregional inflation forecast for 2024.
Asia’s Growth and Inflation Outlook
Given balancing developments, growth forecasts for East Asia were maintained at 4.6% in 2023 and at 4.2% in 2024, for South Asia at 5.5% in 2023 and 6.1% in 2024, and for the Pacific at 3.3% in 2023 and 2.8% in 2024.
Southeast Asia’s growth prospects were downgraded slightly from 4.7% to 4.6% in 2023 and from 5% to 4.9% in 2024, reflecting weaker global demand for manufactured exports.
Growth forecasts for the Caucasus and Central Asia were adjusted down from 4.4% to 4.3% in 2023 and from 4.6% to 4.4% in 2024 after oil production in Azerbaijan fell more than expected.
Headline inflation eased toward pre-pandemic averages as fuel and food prices waned.
With lower inflation in developing Asia and more moderate monetary tightening in the United States, most central banks in the region have kept policy rates steady this year, with signs emerging of a shift toward easier money.
Interest rates in the United States and other advanced economies are likely to shape the regional growth outlook, with upside and downside risks in balance, it noted.
In developing Asia, exports weakened in the first quarter of 2023 as global demand slowed.
However, consumption and investment are forecasted to boost aggregate regional growth to 4.8% in 2023, while the projection for 2024 is revised down only marginally to 4.7%.
What is ADO?
For the unversed, the ADO is a flagship publication of the Asian Development Bank (ADB) that provides analysis and forecasts of economic trends and policy issues in Asia and the Pacific.
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