Pakistan’s economic growth is projected to modestly improve in the current fiscal year, with the Asian Development Bank (ADB) forecasting a GDP growth rate of 2.8% for fiscal year (FY) 2025, following a recovery to 2.4% in FY2024. The ADB’s latest report highlights that the growth has been supported by increased domestic consumption, driven by higher agricultural incomes and a rise in workers’ remittances.
In the Asian Development Outlook (ADO) September 2024 update, the ADB emphasizes the importance of continuing with Pakistan’s economic reform program to ensure macroeconomic stability and sustained growth. Despite the improvements in GDP, the country still faces challenges, including inflation, fiscal risks, and a need for further policy reforms.
The ADB’s projections indicate a cautiously optimistic outlook for the economy, with the recovery being attributed to several key factors. Higher domestic consumption due to increased agricultural production and workers’ remittances has helped offset some of the economic headwinds faced by the country. Additionally, the inflation rate, which averaged 29.2% in FY2023, has declined to 23.4% in FY2024, with expectations that it will further ease to 15% in FY2025.
ADB Country Director for Pakistan, Yong Ye, highlighted the need for consistent implementation of economic policy reforms to ensure continued recovery. According to Ye, Pakistan’s economic prospects depend on its ability to stabilize public finances, reduce risks from state-owned enterprises, and create a more favorable business environment to stimulate private sector growth. He also emphasized the importance of increasing social spending to improve economic resilience.
The ADB’s growth projection for FY2025 also points to an improved macroeconomic environment, particularly with better access to foreign exchange, which could further benefit sectors like manufacturing and services. However, the agriculture sector, which contributed significantly to the rebound in FY2024, is expected to slow down in FY2025.
Inflation remains one of the critical concerns, although the ADB expects it to decline further in FY2025. The easing of inflation has been largely driven by lower food prices, which were supported by increased agricultural output. The ADB forecasts that inflation will decline to 15% in the coming fiscal year, aided by the government’s monetary policies, reduced volatility in the exchange rate, and a stable outlook for international food prices.
Despite these positive trends, downside risks remain for Pakistan’s economy. The country continues to grapple with challenges such as a fragile fiscal position and external imbalances. Ongoing reforms will be essential to mitigate these risks and sustain the economic recovery.
Pakistan’s growth prospects, as outlined in the ADB report, will also rely on the success of its economic reform efforts. Measures to consolidate public finances, reduce fiscal risks, and encourage private investment will be crucial to maintaining stability and achieving the projected growth rates. Moreover, with inflation expected to continue its downward trend, Pakistan could see further improvements in its economic conditions, provided that the necessary policy adjustments are implemented.
For FY2025, the implementation of the economic adjustment program will be key to stimulating private investment and ensuring a stable economic environment. This includes improving access to foreign exchange, which will be essential for the growth of manufacturing and services sectors. Meanwhile, the agriculture sector, which has played a pivotal role in the recent recovery, may face challenges ahead.
In summary, the ADB’s forecast for Pakistan’s economy presents a cautiously optimistic view, with GDP growth expected to reach 2.8% in FY2025. The country’s ability to maintain this growth will hinge on the consistent application of economic reforms, continued improvement in inflation management, and efforts to create a more conducive environment for private sector investment. As the country continues to navigate these challenges, the role of international organizations like the ADB will be critical in supporting Pakistan’s path to sustained economic recovery.