‘Pakistan’s economy to slow down in FY23 after climate catastrophe’

ISLAMABAD: The Asian Development Bank (ADB) has forecasted that Pakistan’s economy was expected to slow down in the current fiscal year (FY) 2023 to 3.5 percent amid devastating floods, policy tightening, and critical efforts to tackle sizable fiscal and external imbalances.

In the latest Asian Development Outlook (ADO) update, the ADB – while noting that Pakistan’s economic growth reached around six percent in FY22 – revised the growth from 4.5pc to 3.5pc in FY23 (ending 30 June 2023) after climate catastrophe.

The bank, in its report, pointed out that gross domestic product (GDP) growth in Pakistan in FY2022 was propelled by higher private consumption and an expansion in agriculture, services, and industry—particularly large-scale manufacturing.

“However, in FY23 — as well as climate headwinds and Pakistan’s critical policy efforts — ADB’s lower growth projection also reflects double-digit inflation,” the report added.

ADB Country Director for Pakistan Yong Ye said the recent devastating floods that caused widespread damage had added profound risk to the country’s economic outlook.

Read More: Floods in Pakistan caused loss of over Rs65b to health sector

“We hope that flood-related reconstruction and economic reforms will catalyze significant international financial support, stimulate growth, and preserve social and development spending to protect the vulnerable,” he added.

The country director announced that the ADB was preparing a package of relief, rehabilitation, and reconstruction to support people, livelihoods, and infrastructure immediately and in the long-term.

The report further stated that the economic outlook will be shaped largely by the restoration of political stability and the continued implementation of reforms under the revived International Monetary Fund (IMF) programme to stabilize the economy and restore fiscal and external buffers.

In FY2023, fiscal adjustments and monetary tightening are expected to suppress domestic demand. A contraction in demand, together with capacity and input constraints created by higher import prices from the rupee’s depreciation, will reduce industry output.

“In addition to the floods, the elevated inflation rate along with possible fiscal slippages as general elections approach, and a higher-than-projected increase in global food and energy prices, remain downside risks to the outlook,” the report concluded.