Pakistan’s economic resurgence
Pakistan’s economy has experienced a remarkable recovery in recent months, bolstered by an increase in foreign exchange reserves and a reduction in inflation. This resurgence, supported by loans from the International Monetary Fund (IMF) and easing import and currency restrictions, has provided much-needed stability. With foreign exchange reserves now at their highest levels in 30 months, the country is better positioned to meet its financial obligations and sustain economic growth.
In fact, the economy exceeded expectations in the previous quarter, supported by financial inflows from the International Monetary Fund and reduced interest rates that stimulated economic activity. The country’s gross domestic product (GDP) grew by 3.07% in the three months ending in June, compared to the same period last year, according to data from the Pakistan Bureau of Statistics. This outpaced the 2.7% growth predicted by economists and marked an improvement from the revised growth rate of 2.36% for the January-March quarter. For the fiscal year ending in June, the GDP growth estimate was revised to 2.52%, up from an earlier figure of 2.38%. “The economy recorded steady growth of 3.07% during Q4 of FY 2023-24,” read a statement from the Pakistan Bureau of Statistics following the 110th meeting of the National Accounts Committee (NAC).
In Q4, growth across sectors showed significant variance, with agriculture expanding by 6.76%, industry shrinking by 3.59%, and services rising by 3.69%. The NAC also approved an updated provisional GDP growth rate of 2.52% for FY24, which surpassed prior estimates of 2.38%. Revised sectoral growth rates for agriculture, industry, and services were 6.36%, -1.15%, and 2.15%, respectively, for FY24. The strong performance in agriculture was largely driven by a double-digit growth in key crops, which surged by 17.02%, compared to the previous estimate of 16.82%, primarily due to improvements in wheat production, which increased from 31.438 million tons to 31.583 million tons. However, the growth in other crops declined from 0.90% to -1.20%, while the livestock sector saw an improvement, rising from 3.89% to 4.47%, due to reduced input costs.
The committee also approved an updated revision of FY23 growth to -0.22%, marginally lower than the previous estimate of -0.21%. Overall, GDP growth for Q1, Q2, and Q3 of FY 2023-24 was revised to 2.69%, 1.97%, and 2.36%, respectively, compared to earlier figures of 2.71%, 1.79%, and 2.09%. Looking ahead, Pakistan’s GDP is expected to grow between 2.5% and 3.0% in FY25, with expected growth rates of 1.7% in agriculture, 2.1% in industry, and 3.4% in services.
The International Monetary Fund (IMF) has projected Pakistan’s GDP growth to reach 3.2% in FY25, compared to the 2.4% achieved in the previous fiscal year. This forecast exceeds the Asian Development Bank’s (ADB) projection of 2.8% for the ongoing fiscal year. Last year, Pakistan faced a challenging combination of political and economic crises that pushed the nation to the brink of default. However, financial support from multilateral institutions and loans from friendly nations have played a key role in stabilizing the country’s economy.
Pakistan’s foreign exchange reserves have witnessed a significant rebound from dangerously low levels, alleviating some of the import and currency restrictions that had stifled industrial activity. Inflation has also eased, allowing the central bank to lower borrowing costs by 450 basis points since June of this year. As of September 27, 2024, the State Bank of Pakistan (SBP) reported that its foreign exchange reserves surged by $1.17 billion, reaching a 30-month high of $10.70 billion, largely due to the first tranche of a loan from the International Monetary Fund (IMF), as stated in the central bank’s weekly update.
Despite this increase in reserves, the rupee struggled to maintain its strength, dipping by Rs0.10 to a one-week low of Rs277.74 against the US dollar in the interbank market, down from its six-month high of Rs277.64/$. The SBP explained that “the increase in the SBP’s reserves is primarily due to the receipt of $1,026.9 million from the IMF under the Extended Fund Facility (EFF) program.”
Pakistan’s reserves have now risen for 10 consecutive weeks, gaining a total of $1.67 billion, an increase of 19.55%, compared to the $9.03 billion in reserves held in mid-July 2024. Nearly one-third of this growth can be attributed to strong remittances from overseas Pakistanis, inflows from the Roshan Digital Account (RDA), and a recent uptick in export earnings. The remainder of the increase is linked to the IMF’s recent loan disbursement.
The current reserves of $10.7 billion were last seen in mid-April 2022 and now provide over two months of import coverage, a significant improvement from the less-than-one-month coverage provided by the critically low $4 billion reserves held about 15 months ago.
In a bid to solidify its financial stability, the government has recently secured final approval from the IMF for a new $7 billion loan program, ensuring funding clarity for the coming years. The nation is also grappling with $26 billion in loan repayments during the fiscal year that began in July.
The agriculture sector showed robust growth, expanding by 6.76% during the quarter, driven by a bumper wheat harvest, while the services sector grew by 3.69%. The government has committed to structural economic reforms to achieve sustained growth and anticipates an expansion of 3.6% by June 2025.
Pakistan’s economic recovery, marked by rising foreign exchange reserves and declining inflation, signals a positive shift for the nation’s financial health. The timely support from the IMF and an improved export and remittance outlook have strengthened the country’s economic foundations. While challenges remain, including substantial loan repayments, the government’s commitment to structural reforms and the recent IMF loan approval provide hope for continued stability and growth in the years to come. With projections of economic expansion, Pakistan is charting a path toward sustained progress.