Pakistan’s economic growth slowed sharply to one of the lowest levels in its history as its woes intensify amid record inflation and interest rates, along with a stalled International Monetary Fund bailout.
The National Accounts Committee reported gross domestic product provisionally expanded 0.29% for the fiscal year ending June 30, in a statement released on Thursday in Islamabad. An initial 5% GDP target set last June, was revised down to 2.3% in September after devastating floods last summer.
This is only the fifth time in Pakistan’s history the growth rate has been less than 1%, according to Pakistan Bureau of Statistics data going back to 1952. The last time this happened was in fiscal 2020 when the Covid-19 pandemic hit global economies hard.
It’s another sign of the increasing challenges facing Prime Minister Shehbaz Sharif as he struggles to revive a much needed $6.7 billion IMF loan and avert a default amid an ongoing political crisis. The government has already seen demand suppressed after it raised taxes and energy prices, and devalued the currency to comply with IMF demands.
The slowdown is largely due to a contraction of 2.95% in industrial output caused by government restrictions on the imports of many raw materials, since it doesn’t have the funds to make those purchases. Agricultural output has slowed to 1.55% from 6.58% a year earlier after floods last year submerged one third of the country and displaced millions of people.
“This is more managed decline, or decline by design,” said Mohammed Sohail, chief executive of Topline Securities Ltd., adding this has helped the government control the current account deficit and maintain foreign exchange reserves at over $4 billion, despite debt repayments.
The World Bank and the Asian Development Bank have both cut their growth forecasts for Pakistan. Last month, the ADB said it expects the economy to slow significantly to 0.6%, down from 6%. The World Bank’s latest assessment forecasts 0.4% for the current fiscal year, saying it’s likely to “remain below potential in the medium-term.”
Political tensions ahead of elections due by October are adding further to the financial risks, as former premier Imran Khan shows no signs of backing down in his campaign against the government and the powerful military. The standoff has investors on edge. Future financing options also look increasingly uncertain.
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“The first half of the financial year will be challenging as a new IMF deal is expected to take three to four months and then there will be some political stability after elections, so things will start improving after December,” said Topline’s Sohail.
--With assistance from Jill Disis and Ruchi Bhatia.
(Updates with details fifth paragraph)