In research that ranked the Pakistani rupee as the third poorest performing currency in Asia, the Asian Development Bank (ADB) stated that Pakistan’s economic prospects depend on the return of political stability and sustained accessibility to foreign financing.
Despite the floods, the Asian Development Outlook Update study indicated that Pakistan’s economy might still expand by 3.5% and its inflation rate could spike to 18%, two crucial projections for which the government had issued a gloomy estimate.
Although the actual growth rate may remain lower and inflation higher than the ADB prediction, the expected economic growth rate of 3.5% is the second lowest in South Asia and the 18% inflation rate is the second highest.
According to the research, given difficult local and international economic and political conditions, the economic outlook would also depend on the continuous availability of adequate external financing.
According to the Manila-based lending agency, the recent floods’ potential economic repercussions amplify already significant risks to the outlook, such as a high inflation rate, potential fiscal slippage as general elections draw near, and an increase in global food and energy prices that exceeds expectations.
The research observed that the currencies of the Lao PDR, Pakistan, and Sri Lanka all experienced significant declines as a result of escalating debt-related financial stress. After Sri Lanka and Lao PDR, the rupee had Asia’s third worst in terms of currency performance. Since January, the local currency’s value has decreased by 32%.
However, ADB?argued that Pakistan should keep its currency rate flexible, as this will aid in absorbing disruptions from the external shocks?and facilitate the restoration of foreign exchange reserves.
According to the international lender, inflation in South Asia is expected to increase to 8.1% in 2022 and 7.4% from 5.5% in 2023. In contrast, Pakistan’s inflation rate is anticipated to grow to 18% because of a sharp increase during the months of April and June when petroleum and energy subsidies were eliminated, the rupee declined against the US dollar, and global commodity prices spiked.
With the new tax policies revealed in the budget, a hike in the wheat support price, and anticipated price increases for energy, inflation is also predicted to pick up speed in the current fiscal year.
Because to delays in the supply chain, the government has predicted that this fiscal year’s inflation rate may reach 27%.
ADB also reduced its growth target for Pakistan from 4.5% to 3.5% from its original projection released in April of this year, citing ongoing stabilization efforts as the reason. However, the government has predicted that the economy will increase by 1.2% to 1.7% in the event of the floods.