The Asian Development Bank’s recent outlook points to growth potential, contingent upon addressing underlying issues, building a more stable political environment, diversifying the economy, and investing in infrastructure.
The SWOT analysis of ADB’s outlook for Pakistan’s economy reflects a mix of strengths, weaknesses, opportunities, and threats. One of the strengths identified is the potential for GDP growth of 1.9% in 2024 and 2.8% in 2025 if Pakistan adheres to the economic adjustment programme critical for restoring macroeconomic stability and gradual growth recovery.
This anticipated rebound is bolstered by ongoing IMF support, which enhances market confidence and attracts external financing. However, growth prospects still hinge on higher crop output, improvements in manufacturing, and a rebound in private sector investment, contingent on factors such as progress in reform measures driven by increased confidence, reduced macroeconomic imbalances, achieving greater political stability, and improved external conditions.
The weaknesses pointed out by the ADB reports are high inflation which would continue at about 25% in FY2024, driven by higher energy prices, and may ease down to 15% in FY2025, if progress on macroeconomic stabilization continues.
In an effort to reign in the python of inflation, the State Bank of Pakistan (SBP) has maintained a tightened monetary policy, keeping the policy interest rate at 22% due to persistent inflationary pressures and external imbalances. The SBP is expected to maintain a tight policy to lower inflation by 5%–7%.
However, political uncertainty remains a significant challenge, potentially hampering reform efforts and economic stability. The projected growth rate of 1.9% in 2024 and 2.8% in 2025 is very low compared to any other countries of the region (India 7% Bangladesh 7.1%, China 4.8%).
If we factor in annual population growth rate of 2% the nominal GDP growth will be (1.9-2=0.1 in 2024), (2.8-2=0.8% in 2025) whereas a country needs a growth rate of at least 7% to absorb the addition of workforce which enters every year in the country’s labor market.
Opportunities lie in attracting private sector investment through reforms, enhancing infrastructure to boost efficiency, and fostering regional cooperation to access new markets. Threats, including a global economic slowdown, an all-out war in the Middle East and climate change, impact on real growth.
Pakistan has been facing cyclic economic crests and troughs since the past 50 years marked by periods of impressive growth followed by setbacks triggered by political instability, external shocks, and natural disasters.
The “Asian Tiger” era of the 1960s and the remittance-fueled boom of the 2000s contrast with lows in the 1970s and 1990s due to political instability. External shocks like the global financial crisis and wars, along with natural disasters such as floods and the recent pandemic, have further challenged economic stability.
These cycles underscore key vulnerabilities, including frequent changes in government that hinder long-term planning, a heavy reliance on imports, and inadequate infrastructure leading to bottlenecks.
Moreover, persistent high government spending exceeding revenue has contributed to debt and inflation.
Aurangzeb Alamgir (Dubai)
Copyright Business Recorder, 2024
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