Pakistan’s GDP will likely rebound to 1.9% in FY24: ADB

September 20, 2023 (MLN): Pakistan’s gross domestic product (GDP) growth for FY24 is forecasted to recover to 1.9% from 0.3% in FY23, according to the Asian Development Bank’s (ADB) September report issued today.

This growth forecast of 1.9% in FY24 is slightly below the April projection, assuming continued implementation of reforms and supportive macroeconomic policies, recovery from flood-induced supply shocks, and improving external conditions.

Political stability following general elections later this year, if achieved, will boost business confidence, as will a new standby arrangement agreed with the International Monetary Fund to support economic stabilization and rebuild fiscal buffers.

The growth in FY23 is estimated to have slowed to 0.3%, halting gains made in post-pandemic recovery.

Massive floods at the outset of FY23 damaged cotton and rice crops, cutting expansion in agriculture to one-third of sector growth in FY22.

Inflation expected to remain elevated

However, inflation is expected to remain high, which is estimated to be 25% for FY24, significantly higher than higher than the earlier 15% projection.

While in FY23, average inflation in Pakistan will soar from 12.2% in FY22 to 29.2% on higher food prices caused by supply shortages, continued currency depreciation, import restrictions, and fiscal stimulus for post-pandemic recovery.

Normalized food supplies and lower inflation expectations, albeit tempered by higher power and gas tariffs and likely currency depreciation, could ease inflation somewhat in FY24, but Pakistan’s inflation rate is now expected to remain at 25% in FY24, substantially higher than forecast in April.

Challenges and Opportunities for Asia

The report highlighted that agriculture accounts for a significant portion of the gross domestic product of Pakistan and some other Asian countries.

Many of these economies are highly dependent on hydropower. These economies could face electricity shortages, with adverse spillovers on the production of goods and services.

Economies in the region that are major net food exporters could see export revenue declining if production losses outweigh gains from price increases.

Those that are major net food importers could face higher prices and the choice of funding wider trade deficits or cutting back imports of other goods, requiring a reduction in domestic demand.

Outlook

Expansionary fiscal and monetary policy hit their limits. Growth fell, inflation jumped, the Pakistan rupee weakened, and international reserves shrank.

In response, fiscal and monetary policy have been tightened.

Adherence to an economic adjustment program through April 2024 will be critical for restoring stability and the gradual recovery of growth, which is projected to reach a moderate 1.9% in FY24, with price pressures remaining elevated.

Downside risks to the outlook remain exceptionally high.

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