ADB terms political unrest as risk towards economic stabilisation, reforms in Pakistan

• Inflation will remain elevated at about 25% this year, report states.
• Pakistan's GDP is projected to grow by 1.9% this year, ADB forecasts.
• Food prices will stabilise next year, ADB states in report.

ISLAMABAD: In its annual Asian Development Outlook Report 2024, the Asian Development Bank (ADB) Thursday termed political unrest, devastating floods, and policy slippage as major hurdles in Pakistan's economic progress, citing uncertainty as a risk towards the country's efforts for stabilisation, recovery and reforms.

"The economy contracted as devastating floods, political unrest, and policy slippage curbed investment, consumption, and production," the report read, adding that the country's GDP declined by 0.2% in fiscal year 2023 (FY2023,ended 30 June 2023) following 6.2% expansion in FY2022.

According to the regional development bank, private consumption growth, on the demand side, slipped to 2.4% from 7.1% in FY2022, reflecting higher living costs and slower nominal income growth amid a weakening of employment, while limited fiscal resources led to a 31.6% drop in public investment, while private investment fell by 14.6%, in line with the pessimistic outlook.

"A steep decline in imports from ad hoc import controls allowed net exports to contribute positively to growth," it added.

The bank maintained that the growth in Pakistan is projected to grow by 1.9% this year, driven by a rebound in private sector investment linked to progress on reform measures and transition to a new and more stable government.

"In FY2025, growth is projected to reach 2.8%, driven by higher confidence, reduced macroeconomic imbalances, adequate progress on structural reforms, greater political stability, and improved external conditions," the report added.

Growth has been affected by rising costs and tax hikes in the construction sector, it stated, while the deficit in Pakistan is expected to be at a high level of 25% this fiscal year.

ADB mentioned that Pakistan will have to rely on international financial institutions and friendly countries for external payments.

"Inflation reached a 5-decade high as supply disruption and currency depreciation propelled increases in food and energy prices," the bank said in the report, adding that inflation rates will remain high at about 25% this year due to higher energy prices.

It further mentioned that prices of food commodities will stabilise next year.

However, in it forecast, the ADB also stated that inflation is expected to decrease to 15.0% next year as progress on macroeconomic stabilisation restores confidence

"Inflation will remain elevated at about 25.0% in FY2024, driven by higher energy prices, but is expected to ease in FY2025."

The bank maintained that while improvement in food supplies and moderation of inflation expectations will likely ease inflationary pressures, further increases in energy prices envisaged under the International Monetary Fund (IMF) Stand-by Agreement (SBA) are projected to keep inflation high.

According to the report, agricultural production and industrial sector are expected to improve this fiscal year. If the reforms are implemented, the economic recovery process will begin this year, it added.

In its report, the bank also stressed that there is a need to enforce measures for financial inclusion of women in Pakistan.

"While Pakistan’s overall financial inclusion has improved, the gender gap in account ownership more than doubled over the past decade, reaching 32% in 2021," it stated.

Meanwhile, on the regional front, ADB that developing economies in Asia and the Pacific are forecast to expand by 4.9% on average this year as the region continues its resilient growth amid robust domestic demand, improving semiconductor exports, and recovering tourism.

The wave of recession will ease in the region, it added.