In its latest annual Asian Development Outlook Report for 2024, the Asian Development Bank (ADB) underscored the significant economic hurdles faced by Pakistan.
The ADB report, released on Thursday, identifies political unrest, devastating floods, and policy setbacks as key factors impeding the country’s economic progress and stability.
Economic Contraction Amidst Multiple Challenges
According to the ADB report, Pakistan’s GDP contracted by 0.2% in fiscal year 2023, which ended on June 30, following a robust expansion of 6.2% in the previous fiscal year.
The decline was attributed to reduced investment, consumption, and production due to the adverse impacts of political instability, floods, and policy inconsistencies.
Impact on Consumption and Investment
Private consumption growth experienced a significant slowdown, dropping to 2.4% from 7.1% in fiscal year 2022.
This decline reflects higher living costs and slower income growth amid weakened employment conditions. Public investment plummeted by 31.6%, while private investment also saw a notable decrease of 14.6%.
Positive Net Exports Amid Import Controls
The report highlighted that strict import controls led to a notable decrease in imports, resulting in net exports making a positive contribution to overall growth.
Future Outlook and Projections
Looking ahead, the ADB forecasts a modest economic growth rate of 1.9% for Pakistan in 2024.
This growth is expected to be driven by a rebound in private sector investment, which is contingent upon progress in reform measures and the establishment of a more stable government.
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The ADB’s outlook for fiscal year 2025 is slightly more optimistic, with growth projected to reach 2.8%.
Factors contributing to this anticipated growth include increased confidence, reduced macroeconomic imbalances, progress on structural reforms, enhanced political stability, and improved external conditions.
Challenges in the Construction Sector and Fiscal Deficit
Rising costs and tax hikes in the construction sector have posed additional challenges to economic recovery.
The report also forecasts a high fiscal deficit of 25% for the current fiscal year, underscoring the urgent need for external financial support.
Inflationary Pressures and Financial Inclusion
Inflation soared to a 5-decade high, driven by supply disruptions and currency depreciation.
The ADB projects inflation to remain around 25% this year due to higher energy prices but expects a decline to 15.0% next year as macroeconomic stabilization efforts take effect.
The report emphasized the importance of improving financial inclusion, particularly for women in Pakistan.
Despite overall progress in financial access, a significant gender gap in account ownership persists.
Regional Outlook
On a broader regional scale, the ADB forecasts that developing economies in Asia and the Pacific will expand by 4.9% on average in 2024.
This growth is attributed to resilient domestic demand, improving semiconductor exports, and a gradual recovery in tourism activities.
The report concludes that while Pakistan faces formidable economic challenges, the implementation of structural reforms and stability measures could pave the way for a gradual recovery and sustained growth in the coming years.
