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Construction Industry Of Pakistan To Face 5.2% Contraction In 2023

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The construction industry in Pakistan is facing a challenging year ahead, with a projected contraction of 5.2% in the current year, following a decline of 2.8% in 2022. Several factors contribute to this downturn. 

Economic strains, political uncertainties, and financial instability within Pakistan have all played a role in the projected decline in the construction sector for this year.


The country’s substantial current account deficit, coupled with high levels of public debt and reduced foreign exchange reserves, are expected to put significant pressure on the construction sector.


Additionally, the economy is grappling with elevated inflation rates and soaring costs of energy and construction materials, further dampening construction activity. 


To secure a $1.1 billion tranche of IMF funding before the expiration of the IMF’s Extended Fund Facility on June 30, 2023, the Pakistani government has implemented stringent measures in its FY2023 budget. These measures include cutting spending, expanding the tax base, and lifting restrictions on imports.


The depletion of Pakistan’s foreign exchange reserves has increased its reliance on IMF funds to prevent a default on external debt. 


Inflation rates in Pakistan have surged, with annual consumer price inflation reaching 37.97% in May 2023. In response, Pakistan’s central bank has raised its benchmark interest rate by 100 basis points to 22% in June 2023. This move is expected to weigh on both public and private construction investment in the current year. 


Despite these challenges, the construction industry’s growth in the coming years is expected to be supported by investments in various sectors, including transport, electricity, housing, telecommunication, and industrial infrastructure projects. 


The government’s Indicative Generation Capacity Exemption Plan (IGCEP) for 2022-31 indicates a substantial increase in power demand, attracting both public and private sector investments in the electricity sector. 

 

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