Moaaz Manzoor

Pakistan's improved economic outlook has led the Asian Development Bank to upgrade its FY25 growth forecast to 3%, supported by macroeconomic stability and easing inflation, reports WealthPK.

The ADB has upgraded Pakistan’s economic growth forecast for fiscal year 2024-25 from 2.8% to 3%, reflecting improved macroeconomic stability after the IMF approved a $7 billion Extended Fund Facility in September this year. The ADB’s latest report attributes this revision to expected growth in industrial output, driven by eased import restrictions, improved investor confidence and greater access to foreign exchange.

A more accommodative monetary policy is also anticipated as inflation eases faster than expected. Speaking to WealthPK, economic expert Mohammad Shaaf Najib acknowledged the significance of the ADB’s projections, but stressed that Pakistan’s economic challenges were far from over. “While some economic indicators tend to show positive movement relative to the recent past, we cannot assume that the economy is out of trouble,” he stated. Najib highlighted persistent structural weaknesses, including regulatory barriers and low productivity as key impediments to accelerated growth.

He emphasised, “We need to re-regulate and remove the regulatory sludge acting as a barrier to economic activity, focus on increasing productivity, and have growth as our primary economic target.”He warned that Pakistan risks falling back into the cyclical crises that have plagued the economy in recent years without addressing these issues. The ADB report aligns with Najib’s observations, noting that challenges remain while macroeconomic stability has improved due to the IMF’s $7 billion EFF.

The report highlights the suspension of import management measures and easier access to foreign exchange as drivers of industrial recovery. Najib reinforced this view, stressing that internal reforms must complement external and policy-driven improvements to ensure sustainable growth. “Structural adjustments are necessary to avoid reverting to cycles of crisis and recovery,” he warned.

Muhammad Ishaque Khan, Group Internal Auditor at Standard Chartered Bank, underscored the positive effects of the State Bank of Pakistan’s tight monetary policy, which has helped control inflation and stabilise prices. “The positive effects of a tight monetary policy have helped control inflation and stabilise prices,” he noted. The ADB’s forecast aligns with this assessment, attributing the easing of inflationary pressures to a combination of controlled demand and improved food supplies.

However, Ishaque also pointed out the limitations of a tight monetary policy, particularly the constraints high interest rates place on credit access for businesses and consumers. “While high interest rates have built investor confidence by reducing inflation volatility, transitioning to a growth-focused monetary policy will be necessary as inflation stabilises,” he suggested. Experts agree that while the ADB’s revised forecast is encouraging, Pakistan’s long-term economic stability hinges on the government’s ability to implement structural reforms and adopt a balanced approach to monetary policy.

Inflation control and macroeconomic stability have laid the groundwork, but the focus must shift to fostering growth through regulatory reforms, productivity improvements, and diversified economic policies. This approach could help Pakistan transition from a recovery phase to sustainable development, ensuring resilience against future shocks. “The opportunity is there, but without strategic reforms, the risks of stagnation remain high,” Najib concluded.

Credit: INP-WealthPk