ISLAMABAD – Pakistan’s economic growth has slowed sharply, to one of its lowest levels in history, as its problems deepen amid record inflation and interest rates, and a stalled International Monetary Fund bailout.
The National Accounts Committee said gross domestic product for the fiscal year ended June 30 was provisionally up 0.29% in a statement released in Islamabad on Thursday. A 5% GDP target originally set in June last year was cut to 2.3% in September after last summer’s devastating floods.
According to 1952 Pakistan Bureau of Statistics data, this is only the fifth time in Pakistan’s history that the growth rate has been below 1%. The last time this happened was in fiscal 2020, when the Covid-19 pandemic hit the global economy hard.
This is another sign of the mounting challenges facing Prime Minister Shehbaz Sharif as he struggles to revive a much-needed $6.7 billion IMF loan and avert a default amid an ongoing political crisis. The government has already seen demand fall after raising taxes and energy prices and devaluing the currency to meet IMF demands.
The slowdown is largely due to a drop in industrial production caused by government restrictions on imports of many commodities as the country lacks the funds to make these purchases. Agricultural production has also fallen due to last year’s floods, which inundated a third of the country and displaced millions of people.
“This is more of a managed or intentional decline,” said Mohammed Sohail, chief executive of Topline Securities Ltd., adding it has helped the government control the current account deficit and kept foreign exchange reserves above $4 billion despite debt repayments .
Both the World Bank and the Asian Development Bank have lowered their growth forecasts for Pakistan. Last month, the ADB said it expected the economy to slow sharply from 6% to 0.6%. The latest assessment from the World Bank forecasts growth of 0.4% for the current financial year and assumes that it will “probably remain below potential in the medium term”.
Political tensions ahead of October’s elections add to financial risks as former Prime Minister Imran Khan shows no sign of backing down in his election campaign against the government and powerful military. The standoff unsettles investors. Future financing options also appear increasingly uncertain.
“The first half of the fiscal year will be challenging as a new IMF deal is expected to take three to four months. There will then be some political stability after the elections, so things will improve after December,” Topline’s Sohail said.
The National Accounts Committee said gross domestic product for the fiscal year ended June 30 was provisionally up 0.29% in a statement released in Islamabad on Thursday. A 5% GDP target originally set in June last year was cut to 2.3% in September after last summer’s devastating floods.
According to 1952 Pakistan Bureau of Statistics data, this is only the fifth time in Pakistan’s history that the growth rate has been below 1%. The last time this happened was in fiscal 2020, when the Covid-19 pandemic hit the global economy hard.
This is another sign of the mounting challenges facing Prime Minister Shehbaz Sharif as he struggles to revive a much-needed $6.7 billion IMF loan and avert a default amid an ongoing political crisis. The government has already seen demand fall after raising taxes and energy prices and devaluing the currency to meet IMF demands.
The slowdown is largely due to a drop in industrial production caused by government restrictions on imports of many commodities as the country lacks the funds to make these purchases. Agricultural production has also fallen due to last year’s floods, which inundated a third of the country and displaced millions of people.
“This is more of a managed or intentional decline,” said Mohammed Sohail, chief executive of Topline Securities Ltd., adding it has helped the government control the current account deficit and kept foreign exchange reserves above $4 billion despite debt repayments .
Both the World Bank and the Asian Development Bank have lowered their growth forecasts for Pakistan. Last month, the ADB said it expected the economy to slow sharply from 6% to 0.6%. The latest assessment from the World Bank forecasts growth of 0.4% for the current financial year and assumes that it will “probably remain below potential in the medium term”.
Political tensions ahead of October’s elections add to financial risks as former Prime Minister Imran Khan shows no sign of backing down in his election campaign against the government and powerful military. The standoff unsettles investors. Future financing options also appear increasingly uncertain.
“The first half of the fiscal year will be challenging as a new IMF deal is expected to take three to four months. There will then be some political stability after the elections, so things will improve after December,” Topline’s Sohail said.
