- Pakistan’s GDP is forecast to grow to 3.2pc in 2025, offering hope for gradual economic recovery
In 2024, Pakistan’s economy experienced significant developments across various sectors. Here’s an overview of some of the major economic events:
Agricultural sector: The agriculture sector posted a growth of 6.76% in Q4 FY24, contributing significantly to the overall economic recovery.
Credit rating upgrades: Fitch Ratings upgraded Pakistan’s credit rating to ‘CCC+’ in July, while Moody’s upgraded it to Caa2 in August, reflecting improved economic stability.
Stock market performance: The Pakistan Stock Exchange’s KSE-100 index reached an all-time high of 116,000 points, drawing the highest foreign investment in the stock exchange since 2014. This surge was attributed to SBP rate cuts and the IMF loan.
Foreign exchange reserves status: Pakistan’s total liquid foreign exchange reserves were recorded at $14.9 billion on September 20, 2024, with the State Bank of Pakistan’s reserves at $9.5 billion.
The International Monetary Fund (IMF) has projected GDP growth rate for Pakistan at 3.2% for 2025 against 2.4 per cent in 2024. According to the IMF’s latest World Economic Outlook (WEO) report, released in October 2024, Pakistan’s economy continues to face significant fiscal and external challenges, including high inflation, soaring public debt, and a widening unemployment crisis.
The report warns that Pakistan’s inflation rate, which surged to 29.18% in 2023, will remain elevated at 23.4% throughout 2024, despite efforts to tame prices through monetary tightening and fiscal consolidation.
The State Bank of Pakistan (SBP) implemented a series of policy rate cuts to stimulate economic growth. On December 16, the SBP reduced its key policy rate by 200 basis points to 13%, marking the fifth consecutive cut since June, with a cumulative reduction of 900 basis points in 2024. The inflation is expected to gradually decline to 9.5% in 2025, but the immediate outlook remains dire, with price hikes severely impacting households and businesses alike. Rising food and fuel prices, exacerbated by global economic uncertainties, have contributed to this persistent inflationary pressure.
Challenges and outlook
Public debt continues to loom large over Pakistan’s economy, with government gross debt anticipated to rise to 69.25% of GDP in 2024. This is slightly lower than the 77.29% recorded in 2023 but remains a significant burden on the country’s fiscal health. The fiscal deficit is also set to remain elevated, projected at 6.75% of GDP, highlighting the pressing need for fiscal reforms and revenue generation initiatives. The WEO’s report emphasises that without comprehensive fiscal discipline, debt dynamics could worsen, jeopardising future growth prospects.
On the employment front, the outlook is similarly grim. The WEO forecasts the unemployment rate to remain high at 8% in 2024, reflecting continued challenges in job creation amid slow economic recovery. The labor market remains strained, with job growth insufficient to absorb the rising workforce, especially in a country where population growth remains robust.
The World Economic Outlook also indicates that Pakistan’s real GDP per capita will see only marginal improvement, climbing from Rs167,480 in 2023 to Rs168,191 in 2024, reflecting the limited trickle-down effects of economic growth on living standards. Furthermore, per capita income in US dollar terms remains constrained, projected at $1,587 in 2024, down from $1,651 in 2023, indicating the challenges posed by a weak exchange rate and eroding purchasing power due to inflation.
The Asian Development Bank has also emphasised that economic reforms are critical to strengthening Pakistan’s recovery, projecting a modest GDP growth of 2.4% in 2024. Further, Pakistan’s reliance on Chinese-built power plants has led to economic strains due to high electricity costs and debt repayments, prompting Islamabad to seek renegotiations with IPPs to lower costs.
Despite these challenges, the WEO remains cautiously optimistic about Pakistan’s medium-term growth trajectory. GDP growth is expected to gradually improve to 3.2% in 2025 and 4% by 2026, contingent on the successful implementation of reforms, particularly in the energy and financial sectors. The WEO also forecasts improvements in Pakistan’s investment-to-GDP ratio, which is projected to rise from 13.14% in 2024 to 16.44% by 2029, driven by infrastructure development and increased private sector participation.
The WEO report underscores the importance of addressing structural bottlenecks in Pakistan’s economy, including inefficiencies in the energy sector, which continue to stifle industrial growth. Additionally, the report calls for enhanced efforts to boost exports and attract foreign direct investment, particularly in manufacturing and technology sectors, to create a more diversified and resilient economic base.
In summary, if the coming year is marked by significant policy measures, international financial support, and improvements in key economic indicators, 2025 will be a year of economic stabilisation and recovery for Pakistan.