Pakistan's economic growth rate is expected to slow down to 4% in FY2022, from 5.6% recorded in FY2021, due to tighter fiscal and monetary policies before picking up again in FY2023, the Asian Development Bank (ADB) said in its report on Wednesday.

According to the Asian Development Outlook (ADO) 2022, Pakistan’s gross domestic product (GDP) growth is projected to slow to 4% in FY2022 as the government applies measures to reduce the current account deficit, raise international reserves, and cut inflation.

However, the economy will accelerate to 4.5% in FY2023 due to stronger private consumption and investment.

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“Pakistan’s economy is recovering steadily thanks to well-coordinated fiscal and monetary responses to the pandemic,” said ADB Country Director for Pakistan Yong Ye.

“These led to a remarkable expansion in the industry and services sectors. It is key to continue structural reforms along with appropriate fiscal and monetary policies to contain rising inflation and external imbalances. Comprehensive reforms in tax policy and administration are also critical to boosting revenues in order to fund essential public services.”

ADB highlighted that in FY2022, industrial growth is forecast to decelerate, reflecting fiscal and monetary tightening together with significant depreciation of the local currency, and upward adjustments to domestic oil and electricity prices. Agriculture is expected to continue lending impetus to GDP growth supported by the government’s package of subsidized inputs and increased support prices of wheat and sugarcane.

Meanwhile, inflation rate is expected to pick up in FY2022 to around 11%, up from 8.9% in FY2021, due to higher international energy prices, significant currency depreciation, and elevated global food prices from supply disruptions.

The report highlighted that Pakistan will bear the brunt of high oil prices created by the ongoing Russia-Ukraine conflict.

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“As a net importer of oil and gas, Pakistan will continue experiencing strong inflationary pressures for the remainder of FY2022 from the jump in global fuel prices resulting from the Russian invasion of Ukraine,” it said.

However, inflationary pressures will simmer down to 8.5% in FY2023, as fiscal consolidation progresses and oil and commodity prices stabilise.