By Staff Reporter
ISLAMABAD: The Asian Development Bank (ADB) on Thursday issued a cautionary forecast for Pakistan’s economic future, highlighting “high risks” and political instability as major impediments to the country’s reform initiatives.
The Manila-based lender warned in its Asian Development Outlook report for April 2024 that an escalating conflict in the Middle East could disrupt supply chains, potentially derailing Pakistan’s fragile economy.
“The outlook is uncertain, with high risks on the downside. Political uncertainty that affects macroeconomic policymaking will remain a key risk to the sustainability of stabilization and reform efforts,” the ADB said.
“On the external front, potential supply chain disruptions from an escalation of the conflict in the Middle East would weigh on the economy.”
The ADB stressed the necessity of sustained aid from international partners to meet Pakistan’s extensive external financing needs amidst weak external buffers. “However, these inflows could be hampered by lapses in policy implementation,” it added. “Further IMF support for a medium-term reform agenda would considerably improve market sentiment and catalyze affordable external financing from other sources.”
The ADB projected Pakistan’s economic growth to reach 2.8 percent in FY2025, assuming increased confidence, reduced macroeconomic imbalances, substantial progress on structural reforms, greater political stability, and improved external conditions.
Growth is expected to remain subdued in FY24 but could rebound in the subsequent year if economic reforms are effectively implemented. “Real GDP [Gross Domestic Product] is projected to grow by 1.9 percent in FY2024, driven by a rebound in private sector investment linked to progress on reform measures and transition to a new and more stable government.”
Inflation is expected to stay around 25 percent this year due to high energy prices but should ease in 2025. “While improvement in food supplies and moderation of inflation expectations will likely ease inflationary pressures, further increases in energy prices envisioned under the IMF SBA [standby arrangement] are projected to keep inflation high.”
The ADB expects the inflation rate to ease to 15 percent in 2025.
The headline consumer inflation increased to 28 percent in the first eight months of the current fiscal year. Food inflation, although tempered by improved supplies, remains high, driven by rising energy and agricultural input costs. Core inflation also persists at high levels, reflecting the domestic recovery and energy price adjustments.
The supply side is expected to be buoyed by agricultural recovery post-floods. An increased agricultural output due to favorable weather and government incentives is also bolstering manufacturing growth, already evident in the first half of 2024.
Relaxed import restrictions and economic recovery could widen the current account deficit, with imports likely to grow as domestic demand strengthens and currency market stabilization makes it easier for firms to import inputs. The current account deficit is projected to widen to 1.5 percent of GDP in 2024.
Pakistan continues to grapple with significant new external financing requirements and debt rollovers, compounded by tight global financial conditions. Tax collection surged by 29.5 percent, boosted by reforms in personal income tax, increased taxes on property transfers, and reintroduced taxes on bank cash withdrawals and bonus share issuance. Revenue mobilization is expected to strengthen in the medium term, reflecting planned reforms to widen the tax base.
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