State Bank predicts 2-3% GDP growth for Pakistan in FY24

WEB DESK: The State Bank of Pakistan (SBP) has projected a GDP growth of 2-3 per cent for the fiscal year 2024, citing a report from the central bank.

This projection comes after a challenging fiscal year 2023, marked by multiple issues. Long-standing structural weaknesses, exacerbated by domestic and global supply shocks, led to economic challenges.

These challenges intensified due to factors such as floods, delays in IMF programme reviews, domestic uncertainty, and global financial tightening.

Pakistan’s economy faced severe strains, with monsoon floods impacting economic activity and causing inflation.

Despite a reduced current account deficit, limited foreign inflows led to a decline in foreign exchange reserves.

The SBP emphasised the urgency of addressing these issues, particularly slow tax policy reforms, to ensure resources for essential expenditures.

However, there are signs of improvement. Pakistan secured a $3 billion IMF standby arrangement, reducing near-term risks.

High-frequency indicators suggest economic stabilisation in July 2023. Easing import prioritisation and improved foreign exchange positions are expected to boost manufacturing and exports.

Additionally, a rebound in cotton and rice production will support agriculture in FY24. As a result, the SBP expects 2-3 per cent GDP growth for FY24. To sustain this recovery, comprehensive reforms are crucial.

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These include expediting tax policy reforms and governance reforms in public sector enterprises, creating a favourable environment for foreign direct investment, encouraging technology transfers, and reforming the agriculture sector to reduce import reliance and achieve price stability.

These reforms aim to absorb new labour market entrants, enhance social welfare, and improve living standards.

Despite challenges, slightly improved global and domestic growth prospects are anticipated to bolster foreign exchange earnings from exports.

While import volumes may rise, lower commodity prices are expected to prevent a significant increase in the import bill during FY24.

Consequently, the SBP projects the current account deficit to be within 0.5–1.5 per cent of GDP for FY24, indicating a more stable economic outlook.