Pakistan's economy exhibits signs of initial deceleration in FY25, anticipated to rebound in the latter half.
Pakistan's economy forecast shows a mixed bag of growth and challenges as the second half of financial year 2024-25 unfolds. The economic landscape is expected to have its ups and downs, with the focus on GDP growth, inflation, and external trade dynamics:
Steady but Moderate Growth
- Present Growth: In the first half of the current financial year, Pakistan's economy grew by 1.5%, a dip from the 2.1% recorded in the same period the previous year. Nonetheless, the State Bank of Pakistan (SBP) anticipates an uptick in economic activity, with growth regaining momentum in the latter half[1].
- Future Projections: While the real GDP growth projection remains steadfast in the range of 2.5-3.5% for the entire 2024-25[2], some entities like the Asian Development Bank (ADB) predict a growth increase to 3.0% in the following financial year[1].
Declining Inflation
- Current Inflation: Inflation is predicted to plummet significantly, dropping from 23.4% in the previous financial year to 6.0% in the current year[4]. Even the International Monetary Fund (IMF) projects a slightly higher rate of 5.1%[3].
- Future Outlook: Inflation should stabilize further in the financial year 2026, with predictions of 5.8% by the ADB and 7.7% by the IMF[3][4].
Improving External Trade
- Current Account Balance: The current account balance is projected to improve slightly from a deficit of 0.5% in the previous fiscal year to a deficit of 0.1% in the current year[3]. However, it's anticipated to worsen slightly in the subsequent fiscal year to a deficit of 0.4%[3].
- Foreign Exchange And Investment: Continued economic reforms contribute to foreign exchange stability and support private sector investment[5].
In conclusion, though Pakistan's economic growth is anticipated to remain fairly modest, reduced inflation and improved external trade dynamics hint at a positive outlook. The continued implementation of economic reforms and adherence to IMF arrangements are critical for sustained economic stability and growth[1][3][5].
[1] https://www.adb.org/countries/pakistan/pakistan-regains-economic-growth-momentum-despite-challenges[2] https://www.jang.com.pk/the-news/state-bank-of-pakistan-sees-economy-regaining-momentum-in-second-half-of-current-year/[3] https://www.imf.org/en/COUNTRIES/PAK/Latest[4] https://www.dawn.com/news/1685582[5] https://www.dawn.com/business/reforms-boosted-pakistans-economic-growth-in-fiscal-year-2425
- However, the future growth outlook should be approached prudently, as the persistent risks from inflation, external trade dynamics, and slow overall growth in the economy may persist throughout FY25.
- The declining inflation trend is a promising sign, but the value of the index should continue to be closely monitored to ensure that the 6.0% projection for FY25 persists and doesn't overshoot the projected stabilization of 5.8% in FY26 as per the Asian Development Bank.
- In order to mitigate the risk of increased inflation and invest wisely in the business sector, it's crucial for policymakers to maintain a prudent approach towards managing the economy, especially considering the momentum of growth is expected to remain moderate.
- Despite the projected improvement in the current account balance, the finance sector should remain vigilant in managing risks associated with external trade, as a sudden decline in foreign investment or increase in trade deficits could impact the overall value of the economy.
- As the economy moves into the second half of FY25, the State Bank of Pakistan (SBP) should focus on maintaining a stable currency and encouraging defi (decentralized finance) sector growth to foster a conducive environment for economic growth.
- In January and beyond, the business community should stay abreast of economic growth trends, inflation risks, and external trade dynamics to determine the optimal growth strategies for their companies in the evolving economic landscape.
- The economic outlook for Pakistan in the coming years is influenced by various factors, and a comprehensive understanding of these trends and risks is essential for making prudent decisions in finance and business.
