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Reading: SBP Forecasts Significant Economic Slowdown for FY23 Due to Floods and Fiscal Measures
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PhotoNews Pakistan > Business > SBP Forecasts Significant Economic Slowdown for FY23 Due to Floods and Fiscal Measures
Business

SBP Forecasts Significant Economic Slowdown for FY23 Due to Floods and Fiscal Measures

Web Desk
By Web Desk Published May 20, 2023 4 Min Read
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The State Bank of Pakistan (SBP) announced on Friday that it anticipates a significant deceleration in the nation’s economic growth during the current financial year. This is due to several factors, including severe flooding and fiscal tightening measures.

The central bank’s mid-year review for 2022-23 indicates that the actual GDP growth is likely to be far below the previous year’s rate of 6% and the bank’s adjusted forecast of approximately 2%.

It stated that the economic constraints introduced in 2022 and the damaging floods have significantly impacted the fiscal year 2023’s growth prospects. The SBP’s growth concerns align closely with the predictions of various international financial institutions.

The International Monetary Fund (IMF) and the World Bank recently adjusted their growth expectations for Pakistan downwards, predicting expansion rates of 0.5% and 0.4% for this year.

These bleak projections come when Pakistan grapples with a critical balance of payments crisis, dwindling foreign exchange reserves, and an unprecedented inflation rate.

Furthermore, the stalled progress of Pakistan’s IMF bailout package is heightening the risk of default. Rising political tensions, spurred by the arrest of Pakistan Tehreek-e-Insaf Chairman Imran Khan, might further decrease the likelihood of the $6.5 billion IMF bailout, exacerbating the country’s ongoing political and economic turmoil.

1/3 Pakistan's economic conditions deteriorated in H1FY23 despite policy-induced improvement in external account & fiscal balance as domestic & external factors exacerbated underlying structural issues, says #SBP latest State of Pakistan’s Economy report.https://t.co/HF8Mm6EGP4 pic.twitter.com/cg5bypTPRt

— SBP (@StateBank_Pak) May 19, 2023

The SBP also warned of a high inflation rate, forecasting that the consumer price index (CPI) would hover between 27-29% in the 2023 fiscal year.

The central bank largely attributes this worrying inflation trend to escalating food and energy prices. It also identified multiple risk factors for potential inflation spikes, including depreciating exchange rates, fiscal adjustments, and rising inflation expectations.

Other potential inflation threats include increased crude oil prices due to faster-than-predicted growth in China’s economy and lower wheat production in Pakistan.

Despite a marked decrease in the current account deficit, the nation continues to face foreign account pressures due to scheduled debt repayments and a significant reduction in foreign investments, causing a serious depletion of foreign exchange reserves.

3/3 Headline inflation rose to multi decade high despite policy induced contraction in domestic demand on account of elevated inflation expectations and a range of domestic supply side factors.
Read full report: https://t.co/O7jtlLAjJW

— SBP (@StateBank_Pak) May 19, 2023

The SBP suggests that these external vulnerabilities will likely persist throughout 2023 due to domestic economic instability, the aftereffects of flooding, and global interest rate trends.

However, it expressed hope that resuming the IMF’s loan program could help alleviate these concerns by enabling access to more financing opportunities.

The SBP report highlighted numerous concerns for the first half of the 2023 fiscal year, including challenging global economic conditions, uncertainties regarding the IMF program’s 9th review completion, inadequate external funding, and low foreign exchange reserves. These issues were further compounded by flooding and political instability. The effects were seen in the contraction of agriculture production and large-scale manufacturing (LSM) and a surge in inflation to a historic high.

Despite the challenging outlook, the SBP commits to implementing measures to control inflation and stabilize the external sector while promoting economic growth. However, it warns of substantial uncertainty regarding the economy’s future.

TAGGED:FeaturedPak­istan
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