The Pakistan economy is expected to slow down to 3.5% in FY2023 amid the destroying floods, policy tightening, and critical efforts to overcome quite large fiscal and external imbalances, the Asian Development Bank (ADB) said in a report released Wednesday.
The deceleration in the fiscal year 2023 (which ends on June 30, 2023) has been predicted even when growth in the fiscal year 2022 is expected to have reached 6.0%.
According to Asian Development Outlook (ADO) 2022, the growth of the gross domestic product (GDP) in Pakistan in the fiscal year 2022 was driven by greater private consumption and an expansion in agriculture, services, and industry, manufacturing particularly on a big scale.
But during the 2023 financial year – as well as the climatic opposite winds and critical political efforts from Pakistan – the lower growth projection of the ADB also reflects two-digit inflation. The latest report is an update of the annual flagship publication of ADB.
“The recent devastating floods in Pakistan add a deep risk to the country’s economic prospects,” said the country director of ADB for Pakistan Yong Ye.
“We are hopeful that the reconstruction related to flooding and economic reform will generate significant international financial support, revive growth, and preserve social and development expenditure to protect the vulnerable. ADB is preparing assistance, rehabilitation and reconstruction packages to support people, livelihoods and infrastructure immediate and in the long run, “Yong Ye added.
Economic prospects will be largely shaped by the restoration of political stability and the continuous implementation of reforms within the framework of the revived IMF program to stabilize the economy and restore fiscal and external buffers.
According to the update, private consumption increased by 10% during the 2022 financial year, which led to an improvement in employment conditions and higher household income.
Agriculture Production of Pakistan
Agricultural production increased by 4.4% during the 2022 financial year by strong performance in crops and livestock. The growth of agriculture should moderate due to the damage caused by floods and high contribution costs next year, which could decrease the growth of services, in particular wholesale and retail trade.
During the 2023 financial year, budgetary adjustments and monetary tightening should reduce domestic demand. A contraction of demand, as well as constraints of capacity and input created by higher import prices of the depreciation of the rupee, will reduce the production of the industry.
Inflation in Pakistan
Inflation increased sharply in the fourth quarter (April -June) FY2022, driven by the removal of fuel and electricity subsidies, significant depreciation of the rupee, and the rise in international commodity prices.
The Inflation jumped to 21.3% in June, the highest since 2008, lifting the average inflation to 12.2% in FY2022. Inflationary pressure will remain high in FY2023 with an estimated average inflation increase of 18%.
In addition to the floods, the high inflation rate together with the possible fiscal landslides as the general elections approach, and a more-than-expected increase in the world’s food and energy prices, it seems that downside risks will remain, the report added.
Pakistan Economy to slow down in FY2023: ADB