ISLAMABAD: Pakistan’s economic growth is expected to “slow significantly” in the current fiscal year, the Asian Development Bank (ADB) said in a report on Tuesday, citing listing last year’s devastating floods and the various economic crises the South Asian country faces as its main reasons.
Pakistan has been compounded with a host of economic issues including a huge account deficit, rising inflation, and the country’s foreign exchange reserves falling to critically low levels. Devastating floods last year exacerbated the South Asian country’s economic problems, killing over 1,700 and causing damages over $30 billion.
To keep its economy afloat, Pakistan is desperately seeking external financing and striving to revive a stalled International Monetary Fund (IMF) loan program. An agreement with the IMF would mean Pakistan unlocks $1.1 billion in funds which are crucial for the country to stave off a looming balance of payments crisis. To make matters worse, Pakistan is grappling with record-breaking inflation and massive depreciation of its national currency.
“Pakistan’s economic growth is expected to slow significantly in FY2023 (ends 30 June 2023) in the wake of last year’s devastating floods, ballooning inflation, a current account deficit, and an ongoing foreign exchange crisis,” the bank said in its Asian Development Outlook (ADO) April 2023 report on Tuesday.
According to the report, Pakistan’s gross domestic product (GDP) growth is projected to slow to 0.6 percent in FY2023 from last fiscal year’s 6 percent. However, the ADB report said Pakistan’s economic growth is likely to recover in FY24 and rise to 2 percent once macroeconomic stability resumes, assuming macroeconomic stability resumes, reforms are implemented and external conditions remove.
“Pakistan’s economy continues to face strong headwinds while last year’s catastrophic floods have exacerbated the economic and financial challenges,” ADB Country Director for Pakistan. Yong Ye, said.
“Yet, with a history of resilience in the face of adversity and depending on a fast return to stability twinned with robust macroeconomic and structural reforms, Pakistan can bounce back. ADB is committed to continuing to support Pakistan’s economic recovery and development plans.”
The report said that in FY2023, industrial growth is forecast to continue decelerating, adding that it reflects fiscal and monetary tightening, a significant depreciation of the local currency, and higher domestic oil and electricity prices.
“The fiscal deficit is projected to narrow slightly to the equivalent of 6.9 percent of GDP in FY2023. If the International Monetary Fund program remains on track, the deficit will likely continue to shrink in the medium term as measures to mobilize more revenues— such as harmonizing general sales taxes— gain momentum,” it said.
Average inflation is projected to more than double from 12.2 percent in FY2022 to 27.5 percent this fiscal year, the report said, adding that headline consumer inflation jumped to 25.4 percent in the first seven months of the current fiscal year due to higher domestic energy prices, a weaker currency, flood-related disruptions to supply, and restraint on imports caused by the balance of payment crisis.
As a net importer of oil and gas, Pakistan will continue experiencing strong inflationary pressures for the rest of FY2023, it said.
