Pakistan Growth Slows Sharply as Economic Challenges Mount

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(Bloomberg) — Pakistan’s economic growth has slowed sharply to one of the lowest levels in its history as its problems deepen amid record inflation and interest rates, along with a stalled International Monetary Fund bailout.

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The Committee for National Accounts reported that gross domestic product temporarily expanded by 0.29% for the fiscal year ending June 30, in a statement issued on Thursday in Islamabad. The initial 5% GDP target set last June was revised to 2.3% in September after devastating floods last summer.

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This is only the fifth time in Pakistan’s history that the growth rate has been below 1%, according to Pakistan Statistics Bureau data dating back to 1952. The last time this happened was in fiscal 2020 when the Covid-19 pandemic hit global economies hard. .

It is another sign of the growing challenges facing Prime Minister Shehbaz Sharif as he struggles to revive a much-needed $6.7 billion International Monetary Fund loan and avoid default amid an ongoing political crisis. The government has already seen demand fall after it raised taxes and energy prices and devalued the currency to comply with IMF demands.

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The slowdown is largely due to a decline in industrial production caused by government restrictions on imports of many raw materials, as it does not have the funds to make these purchases. Agricultural production was also curtailed by last year’s floods that submerged a third of the country and displaced millions of people.

Mohamed Suhail, CEO of Topline Securities Ltd. This is a more managed retraction, or a retraction by design,” he said, adding that this helped the government control the current account deficit and maintain foreign exchange reserves at more than $4 billion, despite debt repayments.

The World Bank and Asian Development Bank cut their growth forecasts for Pakistan. Last month, the Asian Development Bank said it expected the economy to slow significantly to 0.6%, down from 6%. The World Bank’s latest assessment expects 0.4% for the current fiscal year, saying it is likely to “remain below potential in the medium term”.

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Political tensions ahead of elections scheduled for October add to the financial stakes, as former prime minister Imran Khan shows no signs of abating in his campaign against the powerful government and military. Showdown has investors on edge. Future financing options also look increasingly uncertain.

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“The first half of the fiscal year will be challenging as the new deal with the IMF is expected to take three to four months and after that there will be some political stability after the elections, so things will start to improve after December,” said Suhail of Topline.

— with the help of Jill Desis.