Economy Picks Up Growth Momentum

Pakistan economy has proved its resilience despite challenges and will pick up growth momentum following implementation on economic reforms and the International Monetary Fund’s $7 billion Extended Fund Facility programme, experts say.

Analysts and economists said Pakistan has the opportunity to rewrite its economic narrative and emerge as a beacon of resilience and progress in the global arena by implementing economic reforms focusing on transparency, accountability, financial discipline and privatisation of loss-making state-owned entities. They said the success of economic reforms hinges on political will and institutional capacity and accelerate Gross Domestic Product (GDP) growth in coming years.

Experts said agriculture, tourism, value-added exports and IT sector can drive Pakistan economy and accelerate GDP growth up to four per cent annually despite domestic and global challenges. They underlined the need to cut interest rates, reduce inflation and rationalise electricity tariff to provide some cushion to local industries and masses.

Corrective measures

Dr Ashfaque Hasan Khan, Director General of NUST Institute of Policy Studies, said the country needs a political stability to put the economy on road to recovery.

“We need to bring political stability in the country to attract foreign investment and revive domestic economy. The government will have to restore investor confidence by introducing corrective economic measures to accelerate economic growth in coming years,” he said.

Elaborating, he said the government will have to reduce inflation, rationalise electricity tariff and bring down interest rates to 12 per cent from the existing 19.5 per cent.

Khan, who is a former economic advisor to the Ministry of Finance, said currency depreciation, high interest rates, unfair taxation, and expensive utilities have made Pakistani industries uncompetitive globally, leading to a decline in industrial production.

“The government should provide conducive environment to investors so that they can face competitive global markets. The country’s high levels of poverty and inequality, as well as its energy crisis, are major obstacles that need to be addressed in order to sustain long-term growth,” Khan, an economist, said.

Resilient economy

Samiullah Tariq, Head of Research and Development at Pakistan Kuwait Investment Company, said economy is passing through a challenging phase and will prove its resilience once again by registering steady growth in coming years.

“The year 2024 is challenging but economy will stage a rebound. Tourism, agriculture, IT and value-added exports have potential to drive the economy,” Tariq told Khaleej Times.

“GDP growth will be ranging between 2.5 per cent to three per cent during the current financial year 2024-25. Inflation will come down gradually as global commodity prices are also easing,” he said, adding that the rupee should devalue in line with inflation differential.

International financial institutions such as the IMF and the World Bank projected steady economic growth for Pakistan and indicates that the country’s economy will pick up momentum gradually.

In its flagship World Economic Outlook 2024 released in April, the IMF kept the country’s growth rate at 3.5 per cent for the next fiscal year. In January, the fund had lowered the current year’s growth rate by 0.5 per cent from 2.5 per cent and by 0.1 per cent from 3.6 per cent for financial year 2024-25, which it anticipated in October 2023.

The IMF forecast is slightly higher than projections made by its Washington-based institution — the World Bank — at 1.8 per cent. The IMF’s growth forecast is significantly lower than the government’s 3.5 per cent GDP growth target for the current year but generally in line with the State Bank of Pakistan’s expectation of two per cent to three per cent announced as part of the Monetary Policy Statement.

Leading rating agencies also estimated similar growth patron and said the country will sustain an upward trend on economic front. Fitch Ratings said economic growth will accelerate from 2.4 per cent in financial year 2023-24 to 3.2 per cent in financial year 2024-25, driven by monetary easing, improved agricultural output and slowing inflation.

Pakistan-Country Risk report, prepared by BMI, a FitchSolutions Company, spelled out three reasons for an optimistic view about the country’s growth in 2024-25.

“We expect that the vital agriculture sector will continue to recover. The proximate cause of Pakistan’s economic crisis in 2023-24 was a devastating flood, which disrupted agricultural activity. Second, we think that inflation will ease sharply, slipping from 11.8 per cent in May 2024 to just 6.2 per cent in December 2024,” the report observed.

“We also expect that the big falls in Pakistan’s currency are now behind us, and that a broadly stable exchange rate will reduce inflationary pressures. We expect that the key policy rate will be cut from 20.5 per cent in June 2024 to 16 per cent by Dec 2024 and to 14 per cent by Dec 2025,” the report said.

Inflation, policy rates

The BMI research report expressed the hope that easing inflation would provide the State Bank of Pakistan (SBP) with the space to cut its key policy rate from 22 per cent to 16 per cent.

“We expect that policymakers at SBP will continue to loosen policy over the longer term, to 14 per cent by end of 2025,” the report said.

— muzaffarrizvi@khaleejtimes.com

• Supplements