By Staff Reporter
ISLAMABAD: Pakistan’s economy is forecast to slow to 3.5 percent in the current fiscal year amid devastating floods, policy tightening, and critical efforts to tackle sizable fiscal and external imbalances, even as growth in FY2022 is expected to have reached 6.0 percent, the Asian Development Bank (ADB) said on Wednesday.
The Asian Development Outlook (ADO) 2022 Update said the gross domestic product (GDP) growth in Pakistan in FY2022 was propelled by higher private consumption and an expansion in agriculture, services, and industry—particularly large-scale manufacturing. “But in FY2023 —as well as climate headwinds and Pakistan’s critical policy efforts — ADB’s lower growth projection also reflects double-digit inflation,” the ADB’s annual flagship economic publication said.
Yong Ye, the ADB country director for Pakistan said the recent devastating floods in Pakistan add profound risk to the country’s economic outlook. “We hope that flood-related reconstruction and economic reforms will catalyze significant international financial support, stimulate growth, and preserve social and development spending to protect the vulnerable,” Ye said. “ADB is preparing a package of relief, rehabilitation, and reconstruction to support people, livelihoods, and infrastructure immediately and in the long-term.”
Record monsoon rains and glacier melt in the country’s northern mountains have triggered flash floods and rain-induced landslides that have killed hundreds of people, sweeping away houses, roads, railway tracks, bridges, livestock, and crops.
Huge areas are inundated, and hundreds of thousands of people have been forced from their homes. The government says the lives of nearly 33 million people have been disrupted.
According to the National Disaster Management Authority’s (NDMA) latest report, the total number of deaths has risen to 1,559, with 15 reported during the last 24 hours.
The economic outlook will be shaped largely by the restoration of political stability and the continued implementation of reforms under the revived International Monetary Fund program to stabilize the economy and restore fiscal and external buffers.
According to the update, private consumption expanded by 10 percent in FY2022 resulting in improved employment conditions and higher household incomes. Agriculture output increased by 4.4 percent in FY2022 supported by strong performances in crops and livestock. Agriculture growth is expected to moderate due to flood damage and high input costs next year, which may diminish services growth, particularly wholesale and retail trade.
In FY2023, fiscal adjustments and monetary tightening are expected to suppress domestic demand. A contraction in demand, together with capacity and input constraints created by higher import prices from the rupee’s depreciation, will reduce industry output.
Inflation accelerated sharply in the fourth quarter (April–June) of FY2022, spurred by the removal of fuel and electricity subsidies, a significant depreciation in the rupee, and the surge in international commodity prices. Inflation spiked to 21.3 percent in June, its highest since 2008, lifting average headline inflation to 12.2percent in FY2022. Inflationary pressures will remain high in FY2023 with inflation forecast to rise to 18 percent.
In addition to the floods, the elevated inflation rate along with possible fiscal slippages as general elections approach, and a higher-than-projected increase in global food and energy prices, remain downside risks to the outlook.
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