Pakistan’s economy is on a gradual but promising path of recovery. The country has shown remarkable resilience during pandemic era and is trying to overcome its fiscal, monetary, external and industrial sector challenges despite the global economic recession. Pakistan has successfully reduced its fiscal deficit, increased its foreign exchange reserves, stabilised its currency, and boosted its exports and remittances.
Moreover, Pakistan has implemented several structural reforms and policy measures to enhance its economic competitiveness, governance, and social welfare that have earned the praise of international financial institutions like IMF, WB and ADB. One such initiative is the establishment of the Special Investment Facilitation Council (SIFC), a hybrid civil-military forum that aims to attract foreign investment and boost economic growth. The SIFC has in principle approved 28 projects worth billions of dollars that would be offered to Gulf countries for investment, including the construction of Diamer-Bhasha dam and mining operations at Reko Diq.
Some of the major developments that have contributed to Pakistan’s economic recovery in FY-2024 are as under:
- The foreign direct investment (FDI) reached $524.7 million during Jul/Oct FY-2024 ($489.9 million last year), increasing by 7.1 per cent, mainly on account of Chinese investment. The FDI reflects the confidence of foreign investors in the potential and prospects of the economy.
- In November 2023, the KSE-100 index of the Pakistan Stock Exchange (PSX) experienced a remarkable surge, surpassing the historical milestone of 66,000 points for the first time ever.
- Similarly, the large-scale manufacturing (LSM) sector, which accounts for about 80% of the industrial output, demonstrated a positive trend for the second consecutive month, posting a growth of 1.0 per cent in September 2023.
- Besides, the farm tractor production and sales witnessed a remarkable growth of 55.1 per cent (17,098) and 86.8 per cent (17,296), respectively, during Jul-Oct FY2024 over the corresponding period of last year. This indicates a strong recovery in the agricultural sector, which contributes about 20% to the GDP.
- On the fiscal front, the government has managed to contain the fiscal deficit and achieve a primary surplus owing to the healthy growth in revenues and prudent expenditure management. The fiscal deficit reduced to 0.9 per cent of GDP in Jul-Sep FY2024 from 1.0 per cent of GDP last year.
- The primary balance, which excludes interest payments, continued to be in surplus and improved to Rs416.8 billion (0.4 per cent of GDP) in Q1 FY-2024 from Rs134.7 billion (0.2 per cent of GDP) last year. The improvement in the fiscal position has helped reduce the public debt burden and create fiscal space for development spending.
- Moreover, the headline inflation, sustained at 26.9 per cent on a year-on-year basis in October 2023, as compared to 26.6 per cent in October 2022. The inflation rate has been relatively stable despite the upward pressure from the rising global commodity prices and the depreciation of the rupee.
- The State Bank of Pakistan (SBP) may consider downward revision in monetary policy rate presently at 22 per cent after taking into account performance of high-frequency indicators and overall inflation outlook. The SBP has also provided various relief measures and incentives to support the economic activity.
On the external front, the current account, which measures the difference between the inflow and outflow of foreign exchange, marked a deficit of 1.05 billion in Jul-Oct FY-2024, as again at a deficit of 3.1 billion last year. The improvement in the current account was largely due to the increase in exports and remittances, which offset the rise in imports. Furthermore, the exports increased by 21.1 per cent to 2.8 billion in October 2023, as compared to 2.3 billion in September 2023, owing to the ease in import restrictions that resulted in a smooth supply of raw material for export-oriented industries.
On the top of that, the remittances increased by 11.5 per cent in October 2023 (2.5 billion) as compared to September 2023 (2.2 billion); and on year-on-year basis remittances grew by 9.1 per cent. The remittances have been a major source of foreign exchange and a lifeline for the economy.
Overall, the positive economic signals and recovery indicators are steering the improvement in the GDP outlook for the fiscal year. In the latest World Economic Outlook (WEO) report, the IMF forecast that the country’s GDP growth rate would be 2.5% in fiscal year 2024. The economic recovery is expected to gain further momentum in the coming months as all the stakeholders have expressed their commitment to continue the structural reforms and the stabilisation policies to ensure sustainable and inclusive growth in the long run.