Pakistan’s GDP to grow 2.1% in FY24: Bloomberg

December 06, 2023 (MLN): Pakistan’s Gross Domestic Product (GDP) is expected to expand by 2.1% in fiscal 2024 after contracting 0.17% in the previous fiscal year, Bloomberg reported.

Moreover, the growth will likely accelerate to 4.8% in the fiscal year 2025, it added.

There are a number of positives for growth in fiscal 2024, Bloomberg's monthly tracker shows activity grew 3.2% between June and October.

Easing supply snarls have helped Pakistan's economy start recovering, and the rebound is expected to strengthen further in 2024.

Loans from the International Monetary Fund (IMF) have provided much-needed dollars, lifting activity and helping avert debt default.

To note, the IMF in November gave preliminary approval for another loan tranche, for $700 million. This looks likely to arrive by January.

A general election is set for February. and the new government is expected to abide by the IMF terms and complete the current program successfully.

The aid from the IMF has helped prop up activity which had fallen by 8.5% between January and June.

However, Bloomberg stressed that more aid from the IMF is needed, which is expected to materialize.

It said that Pakistan will likely negotiate a new longer-term deal with the IMF once the current program ends in March. The IMF estimates that Pakistan needs about $30 billion annually through fiscal 2028 to pay its external debts and buy imports.

The foreign exchange reserves of the country currently stand at a mere $7.3bn.

It is pertinent to note that any trouble around the elections scheduled for February or disruption to the IMF aid needed to pay the country's dollar liabilities would cause growth to undershoot this baseline projection.

Policy Rate Cuts

In addition, the State Bank of Pakistan will likely start cutting its key rate from March as inflation slows down.

As per Bloomberg's forecasts, the central bank will cut rates by 700bps to 15% by the end of 2024.

Inflation to Slowdown in 2024

According to Bloomberg's projections, average quarterly inflation is anticipated to fall below 25% in the first quarter of 2024, below 15% in the second quarter of the same year, and around 10% by the fourth quarter of 2024.

More Positive Indicators for Growth

Dollar loans from creditor countries and multinational lenders, following more aid from the IMF, will help shore up dollar reserves.

This, along with the removal of import restrictions by the central bank, will allow more purchases of raw materials and machinery that facilitate increased production.

Bloomberg sees the start of rate cuts from the SBP next year lowering borrowing costs and increasing credit demand.

Additionally, increased farming acreage compared with 2022, when crops were devastated by floods, is likely to yield higher agricultural output.

Official data for the July-September quarter shows that rice sowing areas have increased 21% compared with 2022. Those for cotton have increased 11% and maize's cultivation area is up by 5%.

February's general elections should lead to greater political stability that will boost investor confidence, it said.

The growth figures will also benefit from a low year-earlier base of comparison.

Headwinds to the rebound included elevated taxes and high fuel and energy bills, both of which have reduced consumer spending power. Sharp increases in debt servicing costs due to higher interest rates constrain the space for fiscal spending. 

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