The World Bank has revised its GDP growth projection for Pakistan in fiscalyear 2023-24 (FY24) to 1.7 percent, down from its previous estimate of 2percent. This adjustment is highlighted in the latest report titled’Pakistan Development Update: Restoring Fiscal Sustainability.’ The reportemphasizes that Pakistan’s economy remains susceptible to both domestic andexternal shocks unless there is a substantial fiscal adjustment and theeffective implementation of comprehensive reforms.
The projection for real GDP growth in FY24 is contingent upon thesuccessful implementation of the IMF Stand-By Arrangement (SBA), securingnew external financing, and maintaining fiscal discipline. The anticipatedgrowth rates are 1.7 percent in FY24 and 2.4 percent in FY25, but overalleconomic growth is expected to remain below its full potential in themedium term, with some improvements in investment and exports.
In FY23, Pakistan experienced a significant economic slowdown, with anestimated contraction of 0.6 percent in real GDP. The World Bank attributesthis decline to a combination of factors, including domestic and externalshocks such as the 2022 floods, government import and capital flowrestrictions, political uncertainty, rising global commodity prices, andtighter global financing conditions. These challenges, coupled with highenergy and food prices, reduced incomes, and agricultural losses due to thefloods, have led to a substantial increase in poverty.
The poverty rate in FY23 is estimated to have risen to 39.4 percent, with12.5 million more Pakistanis falling below the Lower-Middle Income Countrypoverty threshold compared to FY22’s 34.2 percent. The World Bank’s CountryDirector for Pakistan, Najy Benhassine, emphasizes the need for carefuleconomic management and structural reforms to ensure macroeconomicstability and growth. Addressing issues such as high inflation, elevatedelectricity prices, climate-related shocks, and insufficient resources forhuman development and climate adaptation requires critical reforms tocreate fiscal space and invest in inclusive, sustainable, andclimate-resilient development.
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The report also predicts that easing import restrictions due to externalinflows will expand the current account deficit in the short term.Additionally, a weaker currency and higher domestic energy prices areexpected to maintain inflationary pressures. While the primary deficit maydecrease as fiscal consolidation progresses, the overall fiscal deficit islikely to see only marginal improvement due to significantly higherinterest payments.
The economic outlook is subject to substantial downside risks, includingdebt servicing challenges, political uncertainty, and external shocks. Toaddress these macroeconomic challenges, the report recommends comprehensivefiscal reforms, including changes to tax policy, reduction of publicexpenditure distortions, improved energy sector financial viability,increased private sector involvement in state-owned enterprises, andenhanced public debt management through better institutions and domesticdebt market development. These reforms are essential for achievinglong-term economic recovery and stability.
