Early signs of economic improvement observed, says SBP
Published on: October 24, 2023.
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Pakistan Expects Early Economic Recovery in FY24 after Bottoming Out in July 2023
Pakistan’s central bank has recently stated that the country’s economic activities have reached a turning point in July 2023 and are now poised for an early recovery. This positive outlook is attributed to a combination of factors, including the decline in global commodity prices and a favorable international growth forecast. The measures taken to cool down the economy in the previous fiscal year have also contributed to curbing import growth. However, the fiscal deficit is expected to remain large due to elevated interest payments and mounting debt.
Positive Signs in Economic Recovery
The State Bank of Pakistan (SBP) has released its Annual Report on the State of Pakistan’s Economy for Fiscal Year 2022-23, acknowledging some early signs of improvement. High-frequency indicators suggest that economic activity has bottomed out since July 2023, setting the stage for a recovery. The World Economic Outlook for July 2023 indicates a slightly improved global economic growth outlook compared to earlier projections. In addition, non-energy global commodity prices have eased, which can have positive implications for Pakistan’s economy.
Economic Growth Projection
Despite the challenging economic circumstances in the previous year, the SBP has kept its initial projection for economic growth unchanged at 2-3% for FY24. This projection aligns closely with the International Monetary Fund’s (IMF) forecast of 2.5% but falls short of the government’s target of 3.5%. The cooling measures implemented in the past year and the 2022 floods resulted in a mere 0.3% economic growth rate, one of the lowest in the last seven decades.
Potential Growth Drivers
The SBP anticipates a rebound in agricultural growth in FY24, primarily driven by an expected increase in cotton and rice production. To encourage cotton production, the government has announced a minimum price for the FY24 crop. This incentive has already led to an expansion in cotton sowing area and is expected to motivate farmers to enhance crop management practices, despite rising fertilizer and pesticide prices. Similarly, favorable weather conditions and higher domestic rice prices have incentivized growers to expand the area under paddy crops, resulting in increased rice production.
Challenges and Upside Risks
While the expansion in commodity-producing sectors is expected to have a positive impact on services in FY24, the lagged effects of monetary tightening and other contractionary measures may dampen domestic demand. The SBP cautions that unforeseen climate events, adverse movements in global commodity prices, especially oil, and external account pressures pose important upside risks to the projected economic outlook. Inflationary pressures are expected to moderate due to improved supply situations, increased crop production, and a high base from the previous year.
Overall, despite the challenges, Pakistan’s economy is showing early signs of recovery in FY24, and the government aims to boost revenue through various measures such as increasing petroleum development levy and implementing higher tax rates for specific income brackets, builders, developers, and property. To read the original article, click here.
