ISLAMABAD: As Pakistan looks to secure a $7 billion International Monetary Fund (IMF) bailout programme, the Asian Development Bank (ADB) has forecasted the country’s gross domestic product (GDP) to grow at 2.8% in FY2025.
In its Asian Development Outlook (ADO) September 2024 report, the ADB highlighted that growth rebounded to an estimated 2.4% in the ongoing year. This recovery is attributed to reforms under the nine-month IMF Stand-By Arrangement (SBA), which have improved foreign exchange reserves and restored bilateral and multilateral inflows, bringing economic stability.
The ADB’s report comes as the IMF’s executive board is set to meet today (Wednesday). Finance Minister Muhammad Aurangzeb expects the Fund to approve a $7 billion, 37-month Extended Fund Facility (EFF) for Islamabad.
ADB Country Director for Pakistan Yong Ye emphasized that the country’s economic prospects are closely tied to the steadfast and consistent implementation of policy reforms aimed at stabilizing the economy and rebuilding fiscal and external buffers.
The ADB report stresses the importance of adhering to the reform agenda. It is crucial for Pakistan to continue consolidating public finances, expanding social spending and protection, reducing fiscal risks from state-owned enterprises, and improving the business environment to encourage growth led by the private sector.
Inflation, which stood at 29.2% in 2023, has decreased to 23.4% in the ongoing year. The ADB projects that it will further reduce to 15% in FY25 due to a well-regulated monetary policy, reduced exchange rate volatility, and a stable outlook for international food prices. This decline in inflation is primarily attributed to a decrease in food price inflation resulting from increased agricultural production.
The report notes that inflation was higher in the first half of the fiscal year compared to the second. The reduction in inflation and other positive indicators have led to a decline in interest rates. The ADB predicts that the financial deficit during the current fiscal year may be up to 8% of the GDP. An increase in GDP growth is expected to bring down the country’s debt-to-GDP ratio.
However, the report also highlights that the burden of debt and interest payments has increased to 60% of revenue. Despite this, the ADB expects private sector investment to drive growth in the ongoing fiscal year.
Given the economic and political tensions, the ADB calls for strict financial regulation and the maintenance of a market-based exchange rate. The report underscores the need for continuous reforms to ensure economic stability and sustainable growth in Pakistan.
