Manilla October 3 2023: The Asian Development Bank (ADB) said in its recent report that political stability after upcoming elections in Pakistan could boost business confidence and pave way for new standby arrangement with International Monetary Fund (IMF).
The outlook has slightly revised Pakistan’s growth target to 1.9 percent for the fiscal year 2023-24 against its projections of 2 percent made in April 2023.
“In Pakistan, growth is forecast at 1.9% in FY2024, slightly below the April projection, assuming continued implementation of reforms and supportive macroeconomic policies, recovery from flood-induced supply shocks, and improving external conditions,” it added.
The report revised down the country’s growth estimate for FY2023 to 0.3% (0.6% forecast in April).
According to report, the revised projection assumes a modest rebound in demand, with private consumption and private investment growing by about 3% and 5%, respectively.
“Political stability following general elections later this year, if achieved, will boost business confidence, as will a new standby arrangement agreed with the International Monetary Fund to support economic stabilization and rebuild fiscal buffers,” says Asian Development Outlook (ADO) for September 2023.
Fiscal and monetary tightening will crimp demand, as will inflation staying in double digits. On the other hand, implementation of the economic adjustment program and a likely smooth general election should boost confidence, while the easing of import controls should support investment as fiscal tightening restrains public consumption.
On the output side, better weather conditions will enable an increase in the area under cultivation and in yields, supporting recovery in agriculture.
The government’s relief package of free seeds, subsidized credit, and fertilizer will also help. In turn, the recovery of farm output will feed through to industry, which will also benefit from the increased availability of critical imported inputs.
The recovery of output will enable exports to pick up, although imports will grow much faster, due to pent-up demand. However, the downside risks are significant, including from global price shocks and slower global growth.
According to report, in fiscal year 2023 (FY2023, ended 30 June 2023), the economy was buffeted by severe floods, global price shocks, and political instability.
Expansionary fiscal and monetary policy hit their limits. Growth fell, inflation jumped, the Pakistan rupee weakened, and international reserves shrank. In response, fiscal and monetary policy have been tightened.
Adherence to an economic adjustment program through April 2024 will be critical for restoring stability and the gradual recovery of growth, which is projected to reach a moderate 1.9% in FY2024, with price pressures remaining elevated. Downside risks to the outlook remain exceptionally high, it added.