Pakistan’s economy is expected to grow by four to five percent during FY23, which is slower than last year’s growth of 5.6 percent, according to a half-yearly report issued by the State Bank of Pakistan (SBP).
Titled ‘The State of Pakistan’s Economy’, the report details that the economic outlook is based on three main factors. First, industrial output across some sectors may exhibit a slowdown, partly due to the impact of monetary tightening and other regulatory measures taken in the first half of FY22.
The report indicated that the slowdown may be visible, particularly in sectors affected by consumer financings such as automobiles and other consumer goods. However, export-oriented sectors are expected to continue benefiting from SBP’s concessionary financing schemes (Export Finance Scheme and Long Term Financing Facility), as the increase in the interest rate on the Export Finance Scheme, announced in April 2022, is expected to have a delayed impact.
Regarding the second factor, the report revealed that uncertainty surrounds the agriculture output. On one hand, the estimates for Kharif crop output are promising, with record production estimated for sugarcane and rice, and decent growth expected for cotton. However, on the other hand, downside risks stem from vulnerabilities that challenge the wheat crop which was marked by lower input usage in the second quarter of FY22.
The report highlighted that the third factor influencing the economic outlook is the performance of commodity-producing sectors. The performance of these sectors will expectedly continue providing the impetus for service sector growth, whereas import growth will also provide support.
The sharp increase in global commodity prices will keep import payments at an elevated level in FY22, as per the report. This will partly offset the expected decline in import volumes on account of the lagged impact of monetary tightening on overall economic activity and other demand-compressing regulatory measures. As a result, the current account deficit is projected to increase to around four percent of the GDP.