Pakistan’s economic growth is expected to slow during the current and next fiscal years after the government cut development spending and faced rising global pressures, Planning Minister Ahsan Iqbal said.
Addressing a press conference, the minister confirmed that the country’s 4.2 percent growth target is now under pressure, citing a nearly 20 percent reduction in the development budget, higher oil prices, and inflation caused by disruptions in global supply chains amid the Middle East conflict.
The government reduced the Public Sector Development Program (PSDP) by Rs. 173 billion, bringing it down to Rs. 837 billion from the original Rs. 1.01 trillion, to fund fuel subsidies and manage inflation during the harvesting season.
This marks the first official acknowledgment of slower-than-expected growth, aligning with projections by international lenders, including the International Monetary Fund, which has estimated Pakistan’s growth between 3.2 percent and 3.5 percent.
Iqbal said the impact of the Middle East crisis will be limited in the current fiscal year, as most of the year has already passed, but warned that the first half of the next fiscal year will face stronger pressure, even if the conflict ends soon.
He noted that global supply chains typically take six to nine months to normalize, meaning the economic effects of the crisis will continue to linger. Pakistan’s GDP had shown improvement earlier, growing 3.8 percent in the first half of the fiscal year, compared to 1.9 percent in the same period last year, before the external shock from the conflict hit.
To manage the situation, the government initially increased fuel prices but later introduced a Rs. 129 billion subsidy, funded partly through development cuts, to control inflation and protect farmers during the harvest season.
He added that fuel prices were later adjusted again due to continued disruptions, including the situation in the Strait of Hormuz, which impacted global supply routes.
He also highlighted the government’s diplomatic efforts to ease tensions between the US and Iran, warning that prolonged conflict could trigger global inflation and economic slowdown. The minister noted that global institutions have already revised forecasts, with the IMF lowering global growth projections to 3.1 percent and raising inflation estimates to 4.4 percent.
To manage rising prices, the government has increased the frequency of meetings of the National Price Monitoring Committee and worked with provinces to control prices and reduce transport fares following diesel price adjustments. Iqbal said the government would focus on boosting exports to offset external pressures, calling it the only sustainable way to bridge the gap between foreign exchange inflows and outflows.