KARACHI: The State Bank of Pakistan (SBP) on Wednesday forecast Pakistan’s economy to grow at a slower pace than the current fiscal year due to devastating flood damage and falling demand, as well as higher interest rates. It was predicted a few months ago. rates, JEE News reported.
In its annual statement, the central bank said, “Considering the flood-induced devastation and stabilization-focused policy, the State Bank has forecast real GDP [Gross Domestic Product] growth for FY 2023. has presented less than the 3-4 per cent limit.” Report on the State of Pakistan’s Economy for the Financial Year 2021/22.
The economy grew by 6 percent during the last financial year. The State Bank had already lowered economic growth to around 2 percent in its monetary policy statement in October.
The State Bank’s growth estimate was not based solely on flood damage to the economy, which is expected to affect real economic activity through various channels and have a substantial negative impact on output.
International financial institutions have also made gloomy predictions for the country’s economy. The World Bank has predicted that the GDP growth rate for the current financial year will be 2.2 percent. The International Monetary Fund had estimated the country’s GDP growth at 3.5 percent without taking into account the impact of the floods.
The central bank’s economic report card for fiscal year 2022 was released amid a balance of payments crisis.
Pakistan is in dire need of external financing while the IMF’s ninth review is pending since September. Foreign exchange reserves have fallen to $6.7 billion, barely enough to cover one month’s worth of imports.
On inflation, the central bank has predicted that prices will rise beyond the previously announced range of 18-20 percent during the current fiscal year. According to its last monetary policy statement, consumer price index inflation is expected to be in the range of 21-23.
“Supply shocks in the form of withdrawal of energy subsidy and resumption of fuel tax and damage to agricultural production due to floods are likely to affect the pace of inflation during the year. End of subsidy and fuel tax The increase led to a sharp increase in inflation from June 2022, and this trend is likely to continue in FY2023 as well,” it said in the report.
A coherent fiscal and monetary policy stance is likely to ease external account pressures in fiscal 2023.
The State Bank sees the current account deficit at around 3 percent of GDP. This improvement will be due to a significant reduction in import growth.
Similarly, global commodity prices have also started to soften after hitting multi-year highs in FY2022, which will reduce pressures from larger price impacts.
However, a slowdown in global demand may also weaken export growth, and tightening policies in advanced economies will reduce the potential for capital flows to emerging and developing economies.
It noted that after seeing an increase in FY 2021, worker remittances appear to peak in FY 2022 and likely remain at similar levels in FY 2023.
“Along with IMF program disbursements, the country is expected to receive external financing from multilateral and bilateral lenders which will substantially strengthen the FX reserve position during FY2023.”
