Pakistan’s economic outlook for the current fiscal year is weakened, with various challenges affecting its growth potential. The country’s exports have seen a decline of 9% year-on-year, and the Purchasing Managers’ Index has remained in contractionary territory. The floods between June and October 2022 have resulted in an estimated damage worth USD 40 billion, destroying crops and raising inflation and import costs.
Furthermore, remittances have dropped by 11% year-on-year, leading to the depletion of Central Bank’s international reserves. Consequently, Pakistan’s credit rating has faced multiple downgrades from significant rating agencies. To avoid default, the government needs to secure a deal with the IMF. Therefore, the government recently liberalized the currency, removed fuel subsidies, and approved a bill to raise USD 636 million in taxes this fiscal year. However, these actions could dampen domestic demand.
Inflation in Pakistan increased to 27.6% in January, mainly driven by surging food prices. Although inflation is predicted to decline, recent currency liberalization and fuel price hikes have led to a rise in inflation forecasts for 2023. Thus, it is vital to monitor the weather, subsidies, currency, and commodity prices.
Pakistan’s economic growth has been mixed in recent years. Although the country experienced strong growth in 2013 and 2014, reaching 4.4% and 4.7%, respectively, growth decelerated in 2015 and 2016, dropping to 4.1% and 4.0%, respectively. However, Pakistan’s economy rebounded in 2017, growing by 5.8%, and continued to grow at 5.5% in 2018. In 2019, economic growth slowed to 1.9%, and the COVID-19 pandemic caused a contraction of -0.5% in 2020. In 2021, Pakistan’s economy showed signs of recovery, growing at 3.9%. Nevertheless, current economic growth is uncertain due to the challenges mentioned above.
In summary, Pakistan faces significant economic challenges in the current fiscal year. Falling exports, remittances, and the recent floods have weakened the country’s economic outlook. Although inflation is anticipated to ease, currency liberalization and fuel price hikes may lead to a rise in inflation. The government must secure an IMF deal to avoid default, but this could dampen domestic demand. With depleting Central Bank reserves and credit rating downgrades, predicting Pakistan’s economic growth in the current year is challenging.
|GDP (USD bn)||339||357||322||301||349|
|GDP per capita (USD)||1,654||1,700||1,506||1,377||1,566|
|GDP (PKR bn)||35,553||39,190||43,798||47,540||55,796|
|Economic Growth (Nominal GDP, ann. var. %)||8.6||10.2||11.8||8.5||17.4|
|Economic Growth (GDP, ann. var. %)||4.4||6.2||2.5||-1.3||6.5|
|Domestic Demand (ann. var. %)||6.8||7.4||2.5||-2.3||8.0|
|Private Consumption (ann. var. %)||6.9||7.2||5.6||-2.9||9.4|
|Government Consumption (ann. var. %)||4.5||5.5||-1.6||8.5||1.8|
|Fixed Investment (ann. var. %)||7.7||10.3||-11.1||-6.7||4.5|
|Exports (G&S, ann. var. %)||2.5||10.0||13.2||1.5||6.5|
|Imports (G&S, ann. var. %)||19.0||15.7||7.6||-5.1||14.5|
|Industrial Production (ann. var. %)||4.6||9.2||0.2||-5.7||7.8|
|Unemployment (% of active population, aop)||5.8||5.8||6.9||6.6||6.3|
|Fiscal Balance (% of GDP)||-5.2||-5.8||-7.9||-7.1||-6.1|
|Public Debt (% of GDP)||60.9||64.8||77.5||79.6||73.6|
|Inflation (CPI, ann. var. %, eop)||6.4||5.4||12.6||8.0||12.3|
|Inflation (CPI, ann. var. %, aop)||4.8|
By Muhammad Adnan Siddiqui