The State Bank of Pakistan (SBP) recently released its 2022-23 Annual Report, providing a comprehensive review of the economy and projections for key macroeconomic indicators in 2023-24. However, a closer examination of the previous year's projections raises questions about the reliability of the SBP's forecasting. “In 2021-22 Annual Report, released in late 2022, the projections for GDP growth and inflation were notably inaccurate. Despite acknowledging the economic impact of floods, the SBP projected a GDP growth rate of 3 to 4 percent for 2022-23, while it hovered near zero,” Dr. Hassan Raza, an economic expert, told WealthPK. He said inflation was forecast to be slightly above 20 percent but in reality, it exceeded 29 percent. This discrepancy underscores the need for a meticulous analysis of the SBP's projections for 2023-24. The pivotal focus is on inflation, a key factor influencing the monetary policy. “The SBP anticipates a 20-22 percent range, aligning closely with the government's 21 percent target. However, the IMF projects a higher average inflation rate of 25.9 percent,” he pointed out. He highlighted that “the SBP anticipates a decline in inflation due to monetary tightening and improved supply conditions. However, the initial months of 2023-24 witnessed a marginal decline, averaging 28.5 percent. External factors such as increased gas and electricity tariffs and elevated crude oil prices further challenge the prospect of a significant reduction to 20 percent.” Turning to the external balance, the SBP's conservative projections for the current account deficit (0.5-1.5 percent of GDP) contrast with the IMF's estimate of $6.5 billion.

Variances stem from differing assumptions about imports and remittances. Notably, the SBP's expectation of unchanged imports contradicts the commitment to a market-based exchange rate policy. Remittance projections by the SBP indicate a nearly 5 percent decline, diverging from the government and IMF's expectations of double-digit growth. This contradicts the actual trend, with a nearly 20 percent fall in the initial months of 2023-24. While the SBP's export projections align with others, the appreciating rupee and rising input costs pose challenges for exporters. In the first four months of 2023-24, exports showed no growth, raising concerns about the sustainability of current levels. He explained that the SBP's optimism about achieving 3 percent GDP growth rate in 2023-24 was based on increased cotton and rice output and removal of controls on imported inputs. Raza further explained that positive signs, such as 2.5 percent growth in the large-scale manufacturing sector in August 2023, suggest a potential economic upturn. However, challenges persist, and achieving the projected growth rate remains contingent on addressing various factors. In conclusion, the SBP's Annual Report for 2022-23 prompts a critical assessment of its projections for 2023-24. Discrepancies in the past forecasts and uncertainties in key economic indicators necessitate a careful monitoring and adaption of policies to ensure the resilience of Pakistan's economy in the coming fiscal year.

Credit: Independent News Pakistan (INP)