January 11, 2024 (MLN): Pakistan's growth is projected to increase to 2.4% in FY2024/25, with an expected easing of its inflation rate, according to the latest South Asia outlook report released by the World Bank.
Total output contracted an estimated 0.2% in FY2022/23 as a result of the effects of damage from the 2022 floods and increased political uncertainty. Consumer price inflation remained elevated, partly reflecting currency depreciation in early 2023.
However, by late 2023, the rupee showed signs of stabilization, driven by a variety of factors.
These included increased liquidity in the foreign exchange market due to tighter enforcement of regulations, a shrinking money supply, a balance-of-payments surplus on account of low import demand, and a moratorium on Chinese debt repayments.
Despite this, the economic outlook for FY2023/24 (July 2023 to June 2024) remains subdued, with growth projected at only 1.7%.
Monetary policy is expected to remain tight to contain inflation, while fiscal policy is also set to be contractionary, reflecting pressures from high debt-service payments.
Moreover, weak confidence stemming from political turmoil will contribute to the slow growth in private demand.
Going forward, parliamentary or national assembly elections are scheduled or planned in 2024.
The heightened uncertainty around these elections could dampen activity in the private sector, including foreign investment.
If combined with political or social unrest and elevated violence, this could further disrupt and weaken economic growth.
In addition, particularly in countries with weak fiscal positions, an increase in spending before these elections could exacerbate macro-fiscal vulnerabilities.
However, the implementation of policies to reduce uncertainty and strengthen growth potential after elections could lead to an improvement in prospects.
