Economic reforms, elections key to restoring stability in Pakistan: ADB

ISLAMABAD: Pakistan’s adherence to an economic adjustment program through April 2024 will be critical to restoring macroeconomic stability and the gradual recovery of the country’s growth, the Asian Development Bank (ADB) said in a report.

According to the Asian Development Outlook (ADO) September 2023, Pakistan’s gross domestic product (GDP) growth is projected to recover modestly to 1.9% in fiscal year 2024 (1 July 2023 to 30 June 2024) from 0.3% in FY2023, with price pressures remaining elevated.

However, significant downside risks to the outlook remain, including global price shocks and slower global growth.

“Pakistan’s economic prospects are closely tied to the steadfast and consistent implementation of policy reforms to stabilize the economy and rebuild fiscal and external buffers,” said ADB Country Director for Pakistan Yong Ye.

“Greater fiscal discipline, a market-determined exchange rate, and speedier progress on reforms in the energy sector and state-owned enterprises are key to reviving economic growth and protecting social and development spending,” Yong Ye added.

Pakistan’s economy was jolted by severe floods, global price shocks, and political instability in FY2023, causing growth to weaken and inflation to rise.

It further said that amid the election season, persistent political instability would remain a key risk to implementing reform toward growth stabilisation, the restoration of confidence, and sustainable debt.

According to the ADO, the implementation of the economic adjustment program and a smooth general election in FY2024 are expected to boost confidence, while easing import controls is likely to support investment.

Favourable weather conditions and the government’s relief package of free seeds, subsidized credit, and fertilizers are expected to support a recovery in agriculture. This, in turn, will help the industry which will also benefit from the increased availability of critical imports.

Inflation is expected to ease to 25% in FY2024 from 29.2% in FY2023, as base-year effects set in, food supply normalizes, and inflation expectations moderate. However, sharp increases in energy tariffs under the economic adjustment program, and the continued weakening of the rupee will keep inflationary pressures elevated.