The Asian Development Bank (ADB) on Wednesday revised downwards forecasted growth rates for Pakistan due to record floods and other policy measures which would slow growth to 3.5%.
According to a revised outlook issued by the Asian Development Bank (ADB) on Wednesday, Pakistan had higher growth of 6% in the fiscal year (FY) 2021-22 due to higher private consumption and an expansion in agriculture, services, and industry — particularly large-scale manufacturing.
But in FY2022-23, the forecast said that Pakistan adopted stringent monetary policies to control inflation, fast depleting reserves and a widening deficit but also major “climate headwinds”. All of these have contributed to lower than previously projected growth rates.
“The recent devastating floods in Pakistan add profound risk to the country’s economic outlook,” said ADB Country Director for Pakistan Yong Ye.
“We hope that flood-related reconstruction and economic reforms will catalyze significant international financial support, stimulate growth, and preserve social and development spending to protect the vulnerable.”
The outlook noted that the lower projection also reflects the possibility of double-digit inflation.
Ye reiterated that ADB is preparing a package of relief, rehabilitation, and reconstruction to support the Pakistani people, their livelihoods, and climate-resilient infrastructure immediately and in the long-term.
The bank further said that the country’s economic outlook is also impacted by Islamabad’s ability to restore political stability and the continued implementation of reforms outlined under the revived International Monetary Fund (IMF) program to stabilize the economy and restore fiscal and external buffers.
What was ‘right’ in FY2022
The outlook said that Pakistan recorded a growth of 6% in FY2022. This was driven by an expansion in private consumption by 10%, resulting in improved employment conditions and higher household incomes. Moreover, agricultural output increased by 4.4% in FY2022, supported by strong performances in crops and livestock.
However, for FY2023, ADB said that the devastation caused by the floods across the main bread and agricultural basket of Pakistan would have a detrimental impact on agriculture and higher cost of inputs, with its growth moderating.
In turn, this will have a negative impact on services growth, particularly wholesale and retail trade.
Further, it said that fiscal adjustments and monetary tightening are expected to suppress domestic demand. The resultant contraction in demand, together with capacity and input constraints created by higher import prices from the rupee’s depreciation, will reduce industry output.
With inflation already rising to the highest ever levels since 2008 to 21.3% in June and average inflation for FY2022 at 12.2%, it was forecasted that inflationary pressures would remain high in FY2023 and inflation is forecasted to rise to 18%.