Global Rice News

ISLAMABAD – The State Bank of Pakistan (SBP) has forecasted a growth rate of 2-3% for Pakistan’s real GDP in FY24, indicating early signs of improvement in the country’s economy. This comes after Pakistan secured a $3.0 billion Stand-By Arrangement (SBA) from the International Monetary Fund (IMF) in FY23, which helped mitigate immediate risks to some extent.

The initial disbursement of $1.2 billion under the SBA, along with $3 billion in bilateral inflows, reversed the declining trend in the SBP FX reserves. Additionally, the World Economic Outlook for July 2023 predicts a slight improvement in global economic growth for 2023, along with a decrease in non-energy global commodity prices compared to last year. These positive trends can potentially have a favorable impact on Pakistan’s economy.

The SBP indicates that high-frequency indicators suggest a stabilization of economic activity from July 2023. The removal of import prioritization guidance by the end of June 2023, coupled with an easing FX position, is expected to improve the supply chain situation and boost growth in Large Scale Manufacturing (LSM) and exports.

Furthermore, the expected increase in cotton and rice production will support agricultural growth in FY24. The government has announced a minimum price of Rs 8,500 per 40 kg for the FY24 cotton crop, which has already led to a significant increase in cotton sowing area. Similarly, favorable weather conditions and rising domestic rice prices have incentivized rice growers to expand their production.

The expansion of commodity-producing sectors is expected to have a positive impact on services in FY24. However, the effects of demand compression measures implemented in the past two years may limit the pace of economic recovery. Taking these factors into account, the SBP projects a real GDP growth rate of 2-3% in FY24.

Monetary tightening and other contractionary measures are expected to keep domestic demand in check. Additionally, the likelihood of increased crop production and gradual import resumption is expected to moderate inflationary pressures in FY24. Along with an improvement in domestic supplies and a high base from last year, lower non-energy global commodity prices are also expected to contribute to a decrease in inflation, projected to range from 20.0-22.0% in FY24. However, unforeseen climate events, fluctuations in global commodity prices (especially oil), and external account pressures pose potential risks to this outlook.

The SBP projects a fiscal deficit in the range of 7.0-8.0% in FY24. Higher interest payments may hinder significant spending reductions, but non-interest expenditure is expected to remain contained due to lower subsidies and grants. The expected recovery in economic activity is likely to boost revenue collection in FY24. The government plans to increase the petroleum development levy (PDL) to Rs 60/litre and introduce higher rates for top income tax brackets, builders, developers, and property, as well as additional GST on unregistered businesses.

The external account outlook improved at the beginning of FY24 following the finalization of the Stand-By Arrangement with the IMF. This revival of confidence led to substantial foreign inflows during the first two months of FY24. Improved global and domestic growth prospects are expected to increase foreign exchange earnings from goods and services exports. Although import volumes may rise, lower commodity prices are expected to limit the expansion of the import bill in FY24. Workers’ remittances, however, are projected to be slightly lower compared to the previous year. Considering these factors, the SBP projects a current account deficit in the range of 0.5-1.5% of GDP in FY24.

The SBP has also released the Governor’s Annual Report 2022-23, which highlights the challenges faced by Pakistan’s economy in FY23, including external and domestic shocks, high inflation, and contraction in economic activities. The report emphasizes the SBP’s measures to maintain stability in the financial system, support the government’s economic policies, and promote financial inclusion. It also stresses the importance of fiscal policy and effective administration in achieving and maintaining price and financial stability.

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