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Friday, September 29, 2023
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EditorialGrowth rate paints a dismal picture

Growth rate paints a dismal picture

Pakistan has forecast the growth rate of its Gross Domestic Product (GDP) at a dismal 0.8 per cent, citing high public debt risk, high interest rates and pressure on external account. Last year’s catastrophic floods and non-conducive international economic environment are some of the reasons behind the growth rate’s curtailment. However, this is for the first time that the government has lowered its growth rate projection, though it is still a little higher than 0 4 to 0.6 per cent forecast by the International Monetary Fund (IMF), World Bank and Asian Development Bank.

The IMF, in its world economic outlook report, reduced Pakistan’s GDP growth rate from 2.5 per cent to 0.5 per cent for the fiscal year 2023-24. It has estimated high inflation, projecting it at 27.1 per cent. The international lender also projected the current account deficit at 2.3 per cent of the GDP for fiscal year 2023 and unemployment rate at seven per cent, which was 0.8 per cent higher than what was estimated for the fiscal year 2022. Similarly, the World Bank and the Asian Development Bank had reduced Pakistan’s growth rate estimates to 0.4 per cent and 0.6 per cent, respectively.

The Pakistani government believes that since major debt sustainability indicators deteriorated in the first half of the current fiscal year, the gross financing needs would remain high and this in turn would give rise to several liquidity risks. According to the ‘Debt Sustainability Analysis (DSA)’ report of the finance ministry’s economic advisory wing, the debt and gross financing needs to gross domestic product ratios had exceeded the IMF’s debt sustainability analysis thresholds in fiscal year 2023.

As a result, “public debt risks remain high,” the report said.

The average inflation is likely to rise this year to 28.5 per cent, and is expected to hover around 21 per cent in the next fiscal year as well. According to the report, “uncertain political and economic environment, pass-through of currency depreciation, and the rise in energy prices” were the major factors behind high inflation. It said that negative shocks of the exchange rate would take the public debt ratio over the 70 per cent threshold of the GDP, which was expected to continue till the fiscal year 2026. Reducing inflation would take some time, but the government needs to start taking measures that can rid the country of inflationary pressures.

The economic advisory wing’s report was, however, optimistic about the growth rate taking a rebound to 5.5 per cent in the fiscal year 2026 provided coordinated efforts were made by both the federal and provincial governments to ensure sustainable economic development. As for the medium term, the report projected growth at 3.5-5.5pc, linking it to price stability and fiscal and external sector sustainability.

In short, tough days are not ending anytime soon. Until the country stands on firm ground, both politically and economically, its people will see no respite. Purchasing cheap oil from Russia is a good step, but we need to take several other measures that can help stabilise our economy.

For now, let’s handle the bad weather that the Met Office has predicted for the next few weeks.

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