Due to challenging economic indicators and political uncertainty, Pakistan’s GDP growth is expected to slow to 2.1 percent in the current fiscal year.
In its report “Pakistan Economic Note,” Egyptian financial services firm EFG Hermes forecasts real GDP growth of 2.1 percent in FY23, down from 6.2 percent in FY22, with the possibility of a mild recovery to 3.1 percent in FY24.
According to the report, the outlook for growth beyond the current fiscal year is largely determined by future political developments, which will determine the macro path. According to the report, the country’s macroeconomic outlook is being harmed by rising political uncertainty.
According to the company, Pakistan’s macroeconomic outlook remains hampered by political unrest that erupted earlier this year following the ouster of former Prime Minister Imran Khan. Since then, the political environment has devolved into a stalemate, with the “cornered” ruling coalition confronted by an increasingly popular opposition.
In addition to the difficult external financial environment, recent floods have painted an unfavorable economic picture. The company is confident that Pakistan will repay its $1 billion Sukuk next month, but it is concerned about its $8 billion reserves, which provide only 1.5 months of import cover.
In that respect, the macro sustainability hinges on Pakistans ability to receive external support from friendly countries, the report added.
The report further sees the recent selection of the new army chief to finally pave the way for inflows, though the outlook will remain uncertain in the near term. Furthermore, despite a recent drop in the current account deficit, the report expects the Pakistani rupee (PKR) to remain under pressure.
We project the current account deficit to narrow to 2.6% of GDP in FY23 with risks mainly tilted to the downside considering the abovementioned concerns, according to the report.
In its findings, EFS Hermes noted the drop in remittances and blamed it on informal channels offering better rates. It expects food supply issues to keep inflation high, with rates averaging around 23.5 percent this fiscal year.