April 02, 2024 (MLN): In the absence of an ambitious and credible economic reform plan, confidence and investment are likely to remain muted in Pakistan, with real GDP projected to grow at 1.8% in FY24, according to the World Bank’s latest Pakistan development update.
Pakistan faced an imminent economic crisis at the start of the fiscal year (FY)24, reflecting the impacts of inadequate macroeconomic management, surging world commodity prices, global monetary tightening, catastrophic flooding in 2022, and political uncertainty.
Amid high inflation and weak confidence, and with reserves at dangerously low levels, the International Monetary Fund (IMF) approved a new Stand-By Arrangement (SBA) program in July 2023.
Steadfast implementation of the program, including through continued fiscal restraint, energy tariff adjustments, and the continued high policy rate enabled new official external inflows early in the fiscal year, allowing a loosening of import management measures, and some recovery in confidence.
The broad-based but still nascent recovery has been inadequate to reduce poverty, with growth expected to reach only 1.8% in FY24; the poverty rate is expected to stagnate at current high levels of around 40%.
Even with the recent successful completion of the IMF-SBA and continued rollovers, reserves are projected to remain low, hovering around 1.3 months of total imports over FY24–26.
According to the World Bank, continued import management measures and tight monetary and fiscal policies are expected to disrupt domestic supply chains and mute aggregate consumption and investment.
Looking ahead, as confidence improves with the expected implementation of a new IMF program, output growth is expected to gradually recover to an average of 2.5% over FY25 and FY26 but remaining below potential in the medium term.
