The State Bank of Pakistan (SBP) has forecasted that Pakistan’s real GDP growth will fall between 2-3% in the current fiscal year, according to their annual economic report. This is lower than the 3.5% GDP growth target approved by the previous government for the 2023-24 financial year budget. The SBP attributed this lower growth forecast to the impact of demand compression measures introduced in the past two years, which may slow down economic recovery. However, the SBP noted that there are “early signs of improvement” in the economic situation after a turbulent year.
The SBP stated that the $3 billion Standby Arrangement (SBA) with the International Monetary Fund (IMF) in July helped alleviate immediate economic risks, and the subsequent release of funds and bilateral inflows helped reverse the declining trend in foreign exchange reserves. The report also highlighted that global economic growth prospects for 2023 have improved compared to earlier projections, which may have positive implications for Pakistan’s economy. Additionally, the easing of import prioritization and improved foreign exchange position are expected to boost growth in manufacturing and exports.
Regarding inflation, the report stated that the lagged impact of monetary tightening and other contractionary measures will keep domestic demand in check, while improvements in supply, particularly in crop production and imports, are expected to moderate inflationary pressures. The report estimates that inflation will be in the range of 20-22% in the current financial year, but it warned of potential upside risks such as unforeseen climate events, adverse movements in global commodity prices, and external account pressures.
The report estimated that the fiscal deficit will be between 7-8% for the current financial year. It expects revenue collection to improve due to the tepid recovery in economic activity, and the government has planned measures such as increasing levies and tax rates to boost revenues. On the other hand, the current account deficit is forecasted to fall between 0.5-1.5% in the current fiscal year. The report noted that improvements in the external account, including the finalization of the IMF SBA, are expected to bolster foreign exchange earnings from exports, although workers’ remittances may remain slightly lower.
The report emphasized the need for broad-ranging reforms to support economic growth and development. It called for expediting tax policy reforms and governance reforms in public sector enterprises, creating a conducive environment for foreign direct investment and technology transfers, and implementing agriculture sector reforms to reduce import reliance and achieve price stability. These reforms are crucial for achieving high and sustainable economic growth, improving social welfare, and raising the standard of living in the country, according to the SBP.
The report also reviewed Pakistan’s economic performance in the previous fiscal year, highlighting the challenges faced due to structural weaknesses and domestic and global supply shocks. It emphasized the importance of addressing these structural impediments, including tax policy reforms, inefficiencies in public sector enterprises, limited investment in capital and research and development, and inadequate attention to crop yields and food supply chains. The report also highlighted the need to streamline Pakistan’s National Statistical System and suggested reforms in this area.