The State Bank of Pakistan (SBP) has forecast the GDP growth rate to be settled between 2 and 3 percent in the current financial year as against the target of 3.5 percent set earlier despite the improvement in macroeconomic indicators.

According to the State of Pakistan’s Economy Report for H1-FY24 released today by the State Bank of Pakistan (SBP), the real economic activities moderately recovered against the contraction last year, while Stand-By Arrangement (SBA) with the IMF helped reduce stress on external account.

The modest economic recovery is expected to continue in the second half of the current financial year. This is also reflected by an improvement in business confidence about expected economic conditions since November 2023. Continued tight monetary policy stance and fiscal consolidation are expected to keep domestic demand in check.

The anticipated increase in wheat production may help maintain a downward trajectory in food inflation by improving supply and discouraging any speculative senti
ments. On the other hand, any significant increase in administered energy prices may offset the impact of these positive developments on the inflation outlook.

Incorporating these factors, the SBP has revised its inflation projection range to 23.0 – 25.0 percent for FY24. However, escalating geopolitical tensions, unfavorable weather conditions, adverse movements in global oil prices, and subsequent external account pressures are some important upside risks to this outlook According to the SBP, the remittances inflows are likely to settle by $28 billion and will miss its target of $30 billion for FY25.

The export receipts and imports will touch its targets of $30 billion and $52 billion The report expects a continuation of modest economic recovery in the second half of FY24. In the backdrop of improvements in business confidence, high-frequency demand indicators since November 2023, and prospects for good wheat production during FY24, the SBP projects real GDP growth in the range of 2 – 3 percent for FY24.

I
nflation

The NCPI inflation, on the other hand, is expected to remain downward trajectory despite uncertainties persisting in both the domestic economy and the international commodity market. Keeping these developments in view, the SBP projects the average NCPI inflation in the range of 23.0 – 25.0 percent for FY24, lower than 29.2 percent in FY23, and is expected to come down to 5 – 7 percent range by September 2025.

Moreover, the external account outlook has improved as the CAD is expected to be lower than the earlier projection, whereas disbursement of last tranche of US$ 1.1 billion under the IMF’s SBA would help maintain external buffers. On the external account, a slightly improved global outlook and domestic growth prospects are anticipated to boost foreign exchange earnings from exports and remittances. While resilient global demand may have a positive impact on Pakistan’s exports, moderating global commodity prices may significantly suppress import prices, leading to an overall contraction in impor
t bill and, hence improvement in trade balance.

Current Account

On external account, the CAD is projected to remain lower than earlier estimates, amid a slightly improved global outlook and domestic growth prospects to boost foreign exchange earnings from exports and remittances.

The SBP projects the current account deficit in the range of 0.5 – 1.5 percent of GDP for FY24. This macroeconomic outlook remains susceptible to escalating geopolitical tensions, unfavorable weather conditions, adverse movements in global oil prices, and subsequent external account pressures.

Debt

Further adjustments in energy prices and fiscal consolidation -warranted for slowing the pace of debt accumulation – may also weigh on economic activities and inflation. Going forward, further adjustments in energy prices and fiscal consolidation, warranted for slowing the pace of debt accumulation, may continue to weigh on economic activities. In this context, achieving higher On fiscal side, the primary balance posted a higher surpl
us during H1-FY24 compared to H1-FY23 on account of strong growth in both tax and non-tax revenues that outpaced the increase in non-interest expenditure.

The fiscal deficit will go up to 8% of GDP as compared to the set target of 6-7 percent, the report noted.

Source: Pro Pakistani