Political instability a ‘major challenge’ for Pak economy
Pakistan’s economy shrank due to political uncertainty and extensive flooding, says ADB, adding that the growth of the construction sector has been affected by rising costs and taxes
Predicting Pakistan’s growth rate to be 1.9 per cent this fiscal year, the Asian Development Bank (ADB) in its report has anticipated a reduction in the wave of inflation in the next financial year.
The Asian Development Bank’s annual Outlook Report for 2024 revealed that the inflation in Pakistan has surged to its highest level in the past five decades last year. Meanwhile, the inflation will continue to rise this year due to the surge in energy prices as part of the International Monetary Fund (IMF) programme.
In its annual report, the Asian Development Bank stated that political instability in Pakistan is a major challenge for economic recovery and reforms.
The inflation in Pakistan is expected to remain at a high level of 25 per cent this fiscal year and it is likely to decrease significantly in the next fiscal year.
According to the report, Pakistan’s economy shrank due to political uncertainty and extensive flooding, adding that the growth of the construction sector has been affected by rising costs and taxes.
The report suggested that the actions are needed for financial inclusion of women in Pakistan, expressing optimism that the agricultural production and industrial sector are expected to improve in the current fiscal year.
The ADB report stated that, if the reforms are implemented, the economic recovery will start from this year and the inflation for Pakistanis is likely to decrease in the next financial year. Food prices are expected to stabilise.
Meanwhile, the IMF chief Kristalina Georgieva has said that Pakistan is in discussions with the IMF on a potential follow-up programme to its nine-month, $3 billion stand-by arrangement, adding that it had important issues to solve.
Addressing an event at the Atlantic Council think tank, the IMF chief said that Pakistan was successfully completing its existing programme and its economy was performing somewhat better, with reserves now being built up.
“There is a commitment to continue on this path, and the country is turning to the fund for potentially having a follow-up programme,” Georgieva said, flagging issues that the struggling South Asian nation still needed to address.
“There are very important issues to be solved in Pakistan: the tax base, how the richer part of society contributes to the economy, the way public spending is being directed and of course, creating … a more transparent environment.”
Pakistan and the IMF last month reached a staff-level agreement on the second and last review of the $3 billion stand-by arrangement, which, if cleared by the global lender’s board, will release about $1.1 billion to the country. The IMF’S board is expected to review the mater in late April, but no firm date has been set, a spokesperson said.
Both sides have also spoken about negotiating a longer-term bailout and continuing with necessary policy reforms to rein in deficits, build up reserves and manage soaring debt servicing.
Pakistan’s external financing requirements for the next fiscal year would hover above $25 billion, which the country plans to bridge with the help of all the multilateral and some bilateral creditors.
However, it was reported that Finance Minister Muhammad Aurangzeb would meet Georgieva in Washington next week but his interactions with the United States officials might remain at a junior level.
Sources said that Aurangzeb was scheduled to meet United States Assistant Secretary of State for South Asia Donald Lu — a fourth-tier official in the US administration.
The minister might also meet the US Deputy Under Secretary of Treasury — a third-tier official in the US administration.
The Pakistani delegation, comprising Aurangzeb, State Bank of Pakistan (SBP) Governor Jameel Ahmad, Finance Secretary Imdad Ullah Bosal and Economic Affairs Division Secretary Dr Kazim Niaz, would visit Washington from April 13 to 21 to atend World BANK-IMF Spring meetings.
Pakistan has decided to use these spring meetings as an opportunity to formally request the IMF for sending a mission to Pakistan to begin negotiations for the medium-term Extended Fund Facility (EFF).