In light of the devastating floods that struck Pakistan last year, rising inflation, a current account deficit, and an ongoing foreign exchange crisis, the Asian Development Bank (ADB) has drastically reduced Pakistan’s GDP estimate for the current fiscal year, lowering it to just 0.6 percent, while stating that economic growth is anticipated to slow significantly in the fiscal year 2023 (which ends on June 30, 2023) as a result.
As the economy battles to recover, Pakistan’s gross domestic product (GDP) growth is predicted to slow to 0.6 percent in FY2023 from 6 percent last fiscal year, according to the Asian Development Outlook (ADO) April 2023, ADB’s flagship economic report.
In FY2024, growth is predicted to increase to 2% under the circumstances of macroeconomic stability returning, reforms being put in place, post-flood recovery, and better external conditions.
ADB Country Director for Pakistan Yong Ye stated that “Pakistan’s economy continues to face strong headwinds while last year’s catastrophic floods have exacerbated the economic and financial challenges.” “However, Pakistan can recover due to its history of overcoming adversity and relying on a quick return to stability coupled with strong macroeconomic and structural reforms. ADB is dedicated to continuing to assist Pakistan’s plans for economic development and recovery.
According to ADO April 2023, Pakistan’s economic, social, and environmental growth is seriously threatened by climate change. In the past 20 years, the nation has been listed as one of the top 10 most vulnerable countries globally by the Global Climate Risk Index. Numerous fatalities have been caused by climate-related extreme weather, as well as enormous losses in infrastructure, farmland, and the economy.
Because of tighter fiscal and monetary policies, a substantial depreciation of the domestic currency, and higher domestic oil and electricity prices, it is anticipated that industrial growth will continue to slow in FY2023.
In FY2023, it is anticipated that the fiscal deficit will marginally decline to 6.9 percent of GDP. The deficit will probably continue to decrease in the medium term if the International Monetary Fund programme stays on course as initiatives to raise more money—like harmonising general sales taxes—gain traction.
The expected average inflation rate is 27.5 percent this fiscal year, up from 12.2 percent in FY2022. In the first seven months of the fiscal year, headline consumer inflation increased to 25.4% due to higher domestic energy costs, a weaker currency, supply disruptions brought on by floods, and import restrictions brought on by the balance of payments crisis. Pakistan, a net importer of energy and gas, will continue to face significant inflationary pressures for the foreseeable future.