IMF, Oil Prices, Election Year Risks to Bring Down the GDP Growth to 5%

Pakistan’s GDP growth is forecast at 5 percent in the fiscal year 2022-23 (ending June 2023) on the back of dips in agriculture (3.9 percent), manufacturing (7.1 percent), and services sector (5.1 percent).

According to an official working paper of the Annual Plan Coordination Committee (APCC), investments will also be moderated because of fiscal and current account compression. Moreover, inflation will stay in the double-digits as global inflationary pressures are not expected to taper off very quickly.

The document states that the projected agriculture growth performance at 3.9 percent is mainly contingent upon the revival of cotton and wheat production, consistent availability of water, certified seeds, fertilizers, pesticides, and agriculture credit facilities. Revival of both these crops will not only support growth momentum but also ease out BoP pressures through lesser import requirements.

Elevated industrial performance over the past two years is expected to consolidate, and augmented production capacity during these years will anchor the growth momentum. However, the growth momentum will be moderated owing to fiscal consolidation efforts. The broad-based revival of Large Scale Manufacturing is projected to sustain growth at 7.4 percent during 2022-23.

There are downside risks of high cost and low supplies of energy inputs, exchange rate-related uncertainties, and Russia-Ukraine war-related supply shocks, which have the potential to impact the manufacturing sector. The overall manufacturing sector is projected to post growth of 7.1 percent during 2022-23.

According to the working paper, the services sector will also be subject to moderation in growth and is targeted to grow by 5.1 percent in 2022-23, which is still lower than its five-year pre-COVID-19 annual average growth of 5.3 percent. Expected performance in both the agriculture and industrial sectors will complement the targeted growth in the services sector.

The investment level for FY2022-23 is expected to decrease slightly to 14.7 percent of GDP due to stabilization and an uncertain economic environment. Fixed Investment is expected to grow by 13 percent on a nominal basis. However, as a percentage of GDP, it will decrease marginally compared with last year and remain around 13 percent of GDP in 2022-23. The National Savings rate is targeted at 12.5  percent of GDP.

Fiscal consolidation will be pursued, and efforts will be made to bring down the fiscal deficit through a combination of revenue enhancement and expenditure management policies. The monetary policy stance will remain vigilant and supportive of demand management policies.

With the likely resumption of the IMF program, the economic outlook for the next fiscal year 2022-23 is expected to result in an orderly rebalancing between imperatives of economic growth and addressing the external sector vulnerabilities; particularly in the light of the extent of the global slowdown and the expected abatement of global inflation in commodity prices and the stability of exchange rate movements. Fiscal adjustment efforts, addressing worsening trade balance, and mitigating political and economic uncertainty will result in a slowdown in economic growth.

Lastly, the external sector will improve upon import compression measures, while the export outlook will be impacted by global demand compression and increasing protectionism tendencies in the world.