Pakistan’s economic outlook ‘uncertain’, says ADB as it predicts 1.8% growth for FY2024

Islamabad: The Asian Development Bank has said that Pakistan’s economic outlook remains uncertain, as political instability would remain a key risk to the sustainability of stabilisation and reform efforts, according to a media report.

The Manila-based lending agency in its ‘Asian Development Outlook’ said potential supply chain disruptions from the escalation of the conflict in the Middle East would weigh on the economy, the Dawn newspaper reported.

It said if reforms are implemented, growth is forecast to restart gradually this fiscal year and improve slightly next year.

“The outlook is uncertain, with high risks on the downside. Political uncertainty that affects macroeconomic policy-making will remain a key risk to the sustainability of stabilisation and reform efforts,” the ADB said in its report.

The ADB predicted 1.9 per cent growth in the fiscal year 2024 (ending on June 30, 2024) and then gradually improve to 2.8 per cent in the fiscal year 2025, driven by higher confidence, reduced macro-economic imbalances, adequate progress on structural reforms, greater political stability, and improved external conditions.

The shift back to positive growth will come from a recovery in both agriculture and industry, it said.

Meanwhile, real gross domestic product (GDP) was expected to grow by 1.9 per cent in 2024, 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 the economy shrank as floods, uncertainty, and disrupted external support caused public investment to plunge and private investment and industry to contract.

“Inflation reached a 5-decade high as supply disruption and currency depreciation propelled increases in food and energy prices,” the agency said.

“Inflation is projected to moderate somewhat this year, and more next year, under stabilisation policies. Improving women’s financial inclusion is critical to strengthen growth,” it said.

The report further forecast that inflation will remain at about 25 per cent this year, driven by higher energy prices, but was expected to ease in 2025.

The ADB highlighted that support from the International Monetary Fund (IMF) for a medium-term reform agenda would considerably improve market sentiment and catalyse affordable external financing from other sources, the Dawn newspaper reported.

On the supply side, it noted growth would be led by post-flood recovery in agriculture. The report said output would rise from a low base on improved weather conditions and a government package of subsidised credit and farm inputs supporting expanded area under cultivation and improved yields, the report said.

Higher farm output would help expand manufacturing, which would also benefit from the increased availability of critical imported inputs. Large-scale manufacturing expanded in three of the first six months of 2024, the report highlighted.

According to the report, the relaxation of import restrictions, coupled with economic recovery, was expected to widen the current account deficit.

However, imports were expected to expand during the year as domestic demand strengthened and the stabilisation of the currency market made it easier for firms to import inputs. Thus, the current account deficit was projected to widen to 1.5 per cent of the GDP in 2024.

The report pointed out that Pakistan would continue to face challenges from substantial new external financing requirements and the rollover of old debt, exacerbated by tight global financial conditions.

The ADB said tax collection increased by 29.5 per cent, as reforms in the personal income tax, higher taxes on property transfers, and the reintroduction of taxes on cash withdrawals from banks and the issuance of bonus shares raised direct tax collections, the Dawn reported.