KARACHI: State Bank of Pakistan (SBP) has projected Gross Domestic Project (GDP) growth in range of two to three percent for financial year 2024. Central bank in its report State of Pakistan Economy for 2022-23, noted that Pakistan’s economy faced multiple challenges during FY23, as longstanding structural weaknesses exacerbated impact of successive domestic and global supply shocks of unprecedented nature.

Country’s macroeconomic situation had already begun to deteriorate since second half of FY22 in aftermath of Russia-Ukraine conflict, elevated global commodity prices and an unplanned fiscal expansion.

Situation worsened during financial year 2023 owing to floods, delay in completion of 9th review of IMF’s Extended Fund Facility programme, continuing domestic uncertainty and tightening global financial conditions. Particularly, devastating monsoon floods significantly dented economic activity, fueled inflationary pressures, increased stress on external account and widened fiscal imbalance because of spending on relief efforts. Similarly, uncertain global economic and financial conditions, softening-but still elevated-global commodity prices, higher debt servicing and reduced external inflows had implications for various sectors of economy.

As per SBP’s annual report, confluence of these developments substantially weakened Pakistan’s macroeconomic performance during FY23. Real GDP growth fell to third-lowest level since FY52, whereas average National CPI inflation spiked to multi-decade high.

While current account deficit narrowed considerably, limited foreign inflows maintained pressures on external account leading to decline in SBP’s FX reserves.

SBP report noted that Pakistan’s economic performance in FY23 highlights importance of addressing perennial structural impediments that pose serious risks to country’s macroeconomic stability. Foremost among these are inadequate and slow tax policy reforms that have constricted resource envelope, even for meeting current expenditures.

Report indicates that this situation requires initiation of broad ranging reforms to address various sectoral imbalances to ensure availability of resources for economic growth and development. Specifically, expediting tax policy reforms and speedy implementation of governance reforms in PSEs is instrumental to create fiscal space for public investment in human and physical capital.

Furthermore, there is also need to create conducive environment to support foreign direct investment in exportable sectors and to encourage technology transfers. Similarly, agriculture sector reforms are required to alleviate import reliance and for achieving price stability.

There is need to expedite these reforms to achieve high and sustainable economic growth required to absorb new entrants in labor market, improve social welfare and raise general standard of living in country.

SBP highlighted that Pakistan’s economic situation has started to show some early signs of improvement. Country was able to secure $ 3 billion Stand-By Arrangement from IMF, towards end of FY23, which helped in alleviating near-term risks to external sector.

Published in The Daily National Courier, October, 24 2023

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