Karachi, May 14, 2024 – The State Bank of Pakistan (SBP) has released projections suggesting that several targets set by the government for the fiscal year 2023-24 are likely to be missed, with notable concerns surrounding GDP growth and fiscal deficit.
In its Half Year (July – December) 2023-24 Report on Pakistan’s Economy issued on Tuesday, the SBP outlined a cautious outlook. GDP growth, a key indicator of economic health, is projected to hover between 2.0 to 3.0 percent, falling short of the targeted 3.5 percent for the ongoing fiscal year.
Likewise, efforts to curb inflation face challenges, with the SBP estimating that headline inflation, as measured by the Consumer Price Index (CPI), will remain elevated between 23 percent to 25 percent, overshooting the targeted 21 percent.
Fiscal concerns loom large as well, with the government’s aim to reduce the fiscal deficit to 6.5 percent of the GDP seemingly unattainable. The SBP projects the deficit to widen between 7 to 8 percent. Concurrently, the current account deficit is anticipated to range between 0.5 to 1.5 percent of the GDP for FY24.
Foreign investment targets may also be missed, with projections indicating that remittances are expected to fall short of the $30.5 billion goal, hovering around $27.1 billion to $28.1 billion. Similarly, while exports are expected to meet their $30 billion target, imports are projected to decrease to $52 billion, below the targeted $58.7 billion.
Despite these challenges, the SBP foresees a modest economic recovery persisting in the second half of FY24, buoyed by improving business confidence and favorable agricultural conditions. Rebounding cotton and rice production, coupled with anticipated growth in wheat harvest, are expected to bolster economic activities.
However, structural reforms are deemed essential for sustaining long-term growth, with the SBP emphasizing the need for fiscal consolidation and energy price adjustments to curb debt accumulation and stimulate economic activity. Tight monetary policies and fiscal discipline are expected to temper domestic demand, while increased wheat production may mitigate food inflation.
Geopolitical tensions, adverse weather conditions, and global oil price fluctuations pose significant risks to the economic outlook, underscoring the importance of enhancing productivity and attracting foreign direct investment (FDI) in export-oriented sectors.
While the global economic landscape remains uncertain, Pakistan’s export earnings and remittances are anticipated to benefit from improved global prospects, albeit subject to international commodity price fluctuations and global financial conditions.
In light of these factors, the SBP underscores the necessity of proactive measures to bolster exports, maintain a sustainable current account deficit, and navigate external challenges while fostering domestic economic growth.
As Pakistan navigates these economic headwinds, the SBP’s projections serve as a sobering reminder of the imperative for concerted efforts to address structural weaknesses and promote sustainable economic development.