Fiscal, monetary policies weigh down Pakistan's growth in FY23: ADB report

• Pakistan lagged behind region in macroeconomic numbers.
• FY2023-24 forecasts on assumption conditions will improve.
• Actual inflation in Pakistan in FY23 higher than projected.

ISLAMABAD: As Pakistan lagged behind other regional countries in macroeconomic numbers, the Asian Development Bank (ADB) did not incorporate the numbers in its new outlook for major economies of Asia, The News reported Thursday.

In the bank's latest outlook for Asia, India's GDP was projected at 6.4% and 6.7% for FY2023 and FY2024, respectively. Its inflation will likely be 4.9% and 4.5% for FY2023 and FY2024.

According to The Asian Development Outlook (ADO), the GDP projections for Nepal and Pakistan are adjusted down for FY2022-23 and maintained for the ongoing fiscal.

Growth in Pakistan in FY2023 (ended June 30, 2023) was weighed down by tighter monetary and fiscal policies to safeguard macroeconomic stability, pervasive inflation, and significant damage from flooding.

In Nepal, significant growth moderation in FY2023 (ended mid-July 2023) reflected unexpectedly sharp effects from several factors, notably tighter monetary policy driving up interest rates, high fuel prices, and import restrictions imposed to manage declining foreign exchange reserves.

Forecasts for FY2023-24 in both economies are maintained on the assumption that external and domestic conditions will improve.

The ADO April 2023 projection for Pakistan in FY2024 assumes that the government will continue reform as recommended by the IMF under a new policy-support program approved on July 12.

South Asia is on course to achieve ADO April 2023 growth forecasts.

Downward revisions for Nepal and Pakistan in 2023 reflect mainly tighter monetary and fiscal policies and are offset by an upward revision for Bangladesh as net exports performed better than expected.

Growth projections elsewhere in South Asia are largely maintained. The Bhutan inflation projection for 2023 is revised down after fuel prices dropped more than expected.

Similarly, the inflation forecast for Sri Lanka is also revised down on account of declining prices for food, transportation, and utilities, as well as base changes for the consumer price index.

In contrast, 2023 inflation projections for Bangladesh and Nepal are revised up, and actual inflation in Pakistan in FY2023 was higher than projected, leaving the sub-regional forecast unchanged.

Continued demand-side pressures in Pakistan play a significant role in the upward revision of the sub-regional inflation forecast for 2024.