Pakistan’s central bank lowers GDP growth forecast to below 3-4 per cent

Pakistan’s central bank has lowered its projected GDP growth forecast for cash strapped country from the range of 3-4 per cent already announced for the current fiscal, citing flood-induced destruction and stabilization policy.

State Bank of PakistanSBP’s flagship economic health report released on Wednesday said that economic growth in the financial year 2021-22 was stronger than expected. real GDP There was an increase of 6 percent compared to 5.7 percent a year ago.

The Dawn newspaper quoted the report as saying that the primary drivers of this growth were broad-based expansion in large-scale manufacturing (LSM) and improved agricultural production.

The primary drivers of this growth were broad-based expansion in LSM and improved agricultural production, the report said.

“A combination of adverse global and domestic developments has led to the re-emergence of macroeconomic imbalances during FY22,” it said.

The SBP said the economy was already in the stage of stabilization when widespread floods hit a large part of the country at the beginning of the current financial year.

It added that the floods are likely to impact the country’s real economic activity through various channels, fearing that through various backward and forward links from damage to crops and livestock to damage to agriculture likely to transmit to the rest of the economy.

The central bank said large-scale infrastructure destruction in affected provinces could also undermine the country’s growth prospects during the year.

international credit rating agencies has downgraded Pakistan’s credit rating and predicted an economic growth rate of around 2 percent for the current fiscal year.

The SBP report said several corrective and other measures are likely to moderate economic activity during FY23, including policy rate hike of 675 basis points, demand management measures announced in the previous financial year and government’s Involves the decision to rest. Fiscal package for fuel and power subsidies at the end of FY22.

The report states that expansionary fiscal stance, buoyancy in global commodity prices and the impact of recession in FY2022 Russia-Ukraine conflict There has been a significant decline in the current account deficit.

Furthermore, the delay in the resumption of the IMF loan program and political instability increased the country’s vulnerability through depletion of foreign exchange reserves.

The report noted that the depreciation of the rupee “exacerbated inflationary pressures by amplifying the effect of global price increases”.

It said the experience of FY22 once again brought to the fore the need to address the country’s structural weaknesses, such as a narrow base of foreign exchange earnings and meager inflows of foreign investment.

“A concerted approach is needed to reduce the energy intensity of the economy by ensuring energy efficiency and conservation, as well as encouraging increased localization of the manufacturing base,” the report said.

Read also: Bilawal Bhutto pleads for flood relief in Pakistan: ‘Camera, attention gone…’

Moreover, amid growing issues related to climate change and inadequate food security situation, there is an urgent need to devise a well-thought-out strategy to deal with these challenges.

It stressed that priority should be given to the production of new varieties of seeds that are suitable for different climatic conditions and laid out a framework with emphasis on water management strategies to increase agricultural productivity.

“Damage to agricultural produce from recent floods is likely to increase imports of agricultural commodities, especially cotton,” the report said.

It said the government has set a target of reducing the fiscal deficit to 4.9 per cent of GDP in FY2023 from 7.9 per cent in this fiscal.

“This result will be achieved through both revenue and expenditure measures,” it said. In fact, the fiscal deficit has crossed into the first quarter of FY2023, the Dawn report said, angering the IMF, which sought more measures to narrow the gap.

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