Pakistan’s economic outlook uncertain, risks identified: ADB Report

WEB DESK: The Asian Development Bank (ADB) recently released its ‘Asian Development Outlook’ for April 2024, highlighting uncertainties in Pakistan’s economic trajectory. The report emphasised significant downside risks, particularly due to political instability, posing challenges to the sustainability of ongoing stabilisation and reform initiatives.

According to the WB, potential disruptions in the supply chain resulting from escalated conflicts in the Middle East could further strain the economy. Pakistan’s substantial external financing needs and fragile external reserves underscore the importance of continued support from multilateral and bilateral partners. However, lapses in policy execution could impede these crucial inflows.

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The ADB stressed the significance of International Monetary Fund (IMF) support for a medium-term reform agenda, which could boost market confidence and facilitate access to affordable external financing from other sources.

Economic growth in Pakistan for FY2025 is forecasted at 2.8 per cent, contingent upon enhanced confidence, reduced macroeconomic imbalances, progress on structural reforms, political stability, and improved external conditions. However, growth is expected to remain subdued in FY24, with a projected rebound in the subsequent year, contingent upon the effective implementation of economic reforms.

Real Gross Domestic Product (GDP) is anticipated to grow by 1.9 per cent in 2024, primarily driven by increased private sector investment, linked to reform progress and the transition to a more stable government.

Inflation is projected to hover around 25 per cent in 2024, driven by higher energy costs, with a potential easing anticipated in 2025 due to improvements in food supplies and moderation of inflation expectations. However, continued energy price hikes, as per the IMF Stand-By Agreement, could sustain inflationary pressures.

The report highlighted the challenge of rising food inflation despite improved supplies, primarily due to escalating energy and agricultural input costs. On the supply side, post-flood agricultural recovery is expected to drive growth, supported by government initiatives such as subsidised credit and agricultural inputs.

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Manufacturing is poised to benefit from increased farm output, with large-scale manufacturing already showing signs of expansion in early 2024.

While relaxation of import restrictions and economic recovery are expected to widen the current account deficit, revenue mobilisation is projected to strengthen in the medium term, driven by tax reforms aimed at broadening the tax base.