Karachi State Bank of Pakistan (SBP) on Friday projected a significant slowdown in economic growth during the current fiscal year due to the twin effects of devastating floods and fiscal consolidation measures.
According to its semi-annual report for the fiscal year 2022-23 (FY23), the central bank said real GDP growth is expected to be significantly lower than last year’s growth of 6 percent, with its own Also revised estimates. About 2 percent.
“Demand management measures and the 2022 deluge have weighed heavily on the growth outlook for FY23,” SBP said. The central bank’s concerns about growth are almost exactly in line with forecasts made by international financial institutions.
The International Monetary Fund (IMF) last month downgraded Pakistan’s growth outlook, forecasting that the country’s weak economy would grow by just 0.5 percent this year. The World Bank predicts the country’s GDP will grow 0.4 percent this year, down from its 2 percent growth forecast in October.
The State Bank’s economic review comes at a time when the nation is grappling with a severe balance of payments crisis, declining foreign exchange reserves and record high inflation.
The lack of progress in Pakistan’s IMF bailout raises the possibility of a default. Escalating tensions following the arrest of Pakistan Tehreek-e-Insaf Chairman Imran Khan could make a $6.5 billion IMF bailout even more impossible, further exacerbating the country’s political and economic unrest.
The central bank said Consumer Price Index (CPI) inflation is likely to remain high in the range of 27-29 percent in FY23.
“The downward inflation outlook is mainly driven by continued increases in food and energy inflation, while core inflation may also pick up,” it said.
“The near-term risks to inflation can be explained by various factors: the second-round effects of the recent exchange rate depreciation, fiscal adjustments including GST, upward revisions in gas and electricity rates, and inflation. A rise in currency expectations.”
In addition, faster-than-expected growth in the Chinese economy and uncertainty regarding crude oil price hikes due to lower-than-target wheat production in Pakistan are other downside risks to the inflation outlook.
Despite a substantial improvement in the current account deficit, pressure on the external account remained due to debt defaults and a significant decline in foreign exchange reserves resulting in a sharp decline in foreign exchange reserves.
“Given the prevailing domestic economic uncertainty, flood impact, and rising global interest rate environment, external account vulnerabilities are likely to remain elevated in FY23,” the SBP said.
“However, the revival of the IMF’s loan program will help reduce overall external sector concerns by increasing access to multilateral and bilateral financing channels.”
Adverse global economic conditions, uncertainty over the completion of the 9th review of the IMF programme, insufficient external financing and low levels of foreign exchange reserves remained major concerns during H1-FY23, the SBP report said. As a result of the instability further increased. In particular, contracting both agricultural production and large-scale manufacturing (LSM); While headline inflation hit a multi-decade high.
The State Bank said it will continue to take measures to control inflation and stabilize the external sector, as well as support economic growth. However, he cautioned that the outlook for the economy remains challenging and there is much uncertainty.
