In reviewing Pakistan’s economic performance in the previous fiscal year (FY23), the report highlights multiple challenges, including structural weaknesses, supply shocks, floods, uncertainty, and tightening global financial conditions. These factors contributed to the country’s economic difficulties, with real GDP growth falling to its third-lowest level since FY52, and inflation reaching multi-decade highs.
The SBP report emphasizes the need for broad-ranging reforms, including tax policy reforms, governance reforms in public sector enterprises, and measures to support foreign direct investment and technology transfers in exportable sectors.
The report also estimates the fiscal deficit to be in the range of 7-8 per cent for FY24, with a focus on revenue collection and expenditure containment. The current account deficit is forecast to fall in the range of 0.5-1.5 per cent for the current fiscal year.
The report underscores the importance of addressing structural impediments, such as tax policy reforms, inefficiencies in public sector enterprises, and the need for increased investment in physical and human capital. It also calls attention to the importance of addressing crop yield stagnation and food supply chain issues.
Pakistan’s central bank, in its annual economic report released on Monday, forecasts a decline in the country’s real GDP growth for the current fiscal year. The State Bank of Pakistan (SBP) has projected a range of 2-3 per cent, which falls short of the previous government’s approved 3.5 per cent GDP growth target for the 2023-24 financial year budget.
The SBP attributes this lowered growth forecast to various demand compression measures implemented in the past two years, which have slowed down economic recovery. Despite this, the report indicates that the economy is beginning to show “early signs of improvement.”
The report highlights that the $3 billion Standby Arrangement (SBA) with the International Monetary Fund (IMF) in July, along with subsequent fund releases and bilateral inflows, has helped stabilize the central bank’s foreign exchange reserves.
Global economic prospects for 2023 have somewhat improved, according to the July 2023 World Economic Outlook, and non-energy global commodity prices have eased compared to the previous year, which may benefit Pakistan’s economy.
The withdrawal of guidance on import prioritization and an easing foreign exchange position are expected to ameliorate supply chain issues and boost growth in large-scale manufacturing and exports. Additionally, a rebound in cotton and rice production is anticipated, supporting agricultural growth in FY24.
On the inflation front, the report suggests that monetary tightening and other contractionary measures will help control domestic demand. Favorable factors like increased crop production and lower global commodity prices are expected to moderate inflationary pressures.
Furthermore, the report emphasizes the importance of accurate macroeconomic data and suggests reforms to streamline Pakistan’s National Statistical System to support evidence-based policymaking.