ADB forecasts 1.9% growth for Pakistan’s economy amid 25% inflation warning

KARACHI: Pakistan’s economy is expected to grow by 1.9 percent in the current fiscal year, the Asian Development Bank (ADB) said in its latest economic outlook report on Thursday, warning inflation would remain elevated at about 25 percent during the same period before easing a bit in the next financial year.
Pakistan has faced significant economic challenges in recent years, grappling with high inflation, fiscal deficits and external debt pressures.
Last year, the country secured a $3 billion short-term loan from the International Monetary Fund (IMF) in a bid to stabilize its economy, with the final tranche anticipated for release in the coming days. Amid the ongoing economic difficulties, the Pakistani government is seeking a more extended bailout program from the IMF, though the specifics of the arrangement are still being negotiated.
The ADB report suggested Pakistan could find itself on a better footing to deal with the financial challenges if it continued to implement structural economic reforms diligently.
“Growth is projected to remain subdued in FY2024‚ and pick up in FY2025, provided economic reforms take effect,” it said. “Real GDP [Gross Domestic Product] is projected to grow by 1.9 percent in FY2024‚ driven by a rebound in private sector investment linked to progress on reform measures and transition to a new and more stable government.”
The ADB said growth was projected to reach 2.8 percent in the next fiscal year, driven by higher confidence, reduced macroeconomic imbalances, adequate progress on structural reforms, greater political stability, and improved external conditions to support recovery in industrial output in the latter half of the year.
“Inflation will remain elevated at about 25.0 percent in FY2024‚ driven by higher energy prices but is expected to ease in FY2025,” it continued. “While improvement in food supplies and moderation of inflation expectations will likely ease inflationary pressures, further increases in energy prices envisaged under the IMF SBA [standby arrangement] are projected to keep inflation high.”
The report pointed out that headline consumer inflation increased to 28 percent in the first eight months of the current fiscal year‚ mainly due to the hikes in energy prices.
However, it added that core inflation was also elevated, reflecting domestic recovery and the pass-through of upward adjustments in energy prices.
The ADB also maintained the relaxation of import restrictions, coupled with economic recovery, was expected to widen the country’s current account deficit.
Additionally, it pointed out Pakistan had the lowest financial inclusion rates for women in the world while calling for gender-inclusive opportunities for smaller enterprises and further microfinance expansion.
“Expanding women’s financial inclusion requires strong will and a prioritized push for legal and regulatory change,” it added. “New rules must support gender-inclusive finance while easing persistent liquidity constraints in the sector.”