The Asian Development Bank (ADB) has highlighted heightened downside risks in Pakistan’s economic outlook in its recent report, emphasizing the critical role of the ongoing economic adjustment programme slated to continue until April 2024 in fostering stability and gradual growth recovery.
The “Asian Development Outlook September 2023” unveiled on Wednesday pointed to several challenges confronting the economy, including dwindling growth, rising inflation, and depleting international reserves, fueled by the exhaustion of the expansionary fiscal and monetary policies. Moreover, the report projected a modest GDP growth of 1.9% in FY2024 while foreseeing continued high price pressures.
The ADB report underscored external pressures on the economy, emanating from potential global financial constraints and potential disruptions due to the escalating Russian-Ukraine conflict. It also highlighted the political instability during the election period as a significant impediment to growth stabilization and debt sustainability.
To navigate these challenges, the ADB urges reliance on support from multilateral and bilateral partners for stable reserve accumulation and positive market sentiment. The economic adjustment programme, which encapsulates fiscal consolidation, monetary tightening, and structural reforms in various sectors, emerges as a vital tool in stabilizing the economy and setting the stage for future governmental strategies.
Forecasted Challenges and Opportunities: Pakistan’s Economic Landscape in FY2024
Despite predictions of a modest recovery in FY2024, uncertainties linger, with stabilisation measures curbing demand growth. Yet, the forthcoming general elections and programme implementations could potentially boost confidence and spur investment. Furthermore, the agricultural sector stands to benefit from favourable weather conditions and governmental aid, fostering a recovery that would ripple into the industrial sector.
However, the economy faces significant downside risks, including global price shocks and a slowdown in global growth. The FY2024 budget targets a primary surplus of 0.4% of GDP and a controlled deficit, with no additional tax amnesties or new exemptions planned. Despite expectations of a gradual reduction in inflation, significant pressures remain, with potential spikes in tariffs and the costs of imported goods, exacerbated by the impacts of the El Nino climate phenomenon and ongoing global conflicts.
Lastly, the report anticipates a rise in the current account deficit to about 1.5% of GDP in FY2024, albeit with an increase in international reserves, thanks to improved prospects for financing from multilateral and bilateral channels facilitated by a new agreement with the IMF.
