Pakistan's economic challenges deepened in the Fiscal Year 2022-23, reveals the Governor's Annual Report (GAR) by the State Bank of Pakistan. The report portrays a turbulent economic landscape marked by external and domestic shocks, structural weaknesses, and persistent inflation, ultimately resulting in a contraction of GDP by 0.2%, reports WealthPK. The report underscores the far-reaching impact of devastating monsoon floods, global commodity price escalations, and lower-than-expected fiscal consolidation. These factors, compounded by the delay in the 9th review of the International Monetary Fund's Extended Fund Facility (EFF) program, exerted immense pressure on Pakistan's external account. Amidst these challenges, the report highlights a concerning surge in the average National Consumer Price Index (CPI) inflation to 29.2% in FY23, aligning with the upper bound of the SBP's revised projection range.

The inflationary pressures were attributed to elevated global commodity prices, exchange rate depreciation, and uncertainty over the completion of the IMF's EFF program. Political uncertainties further weighed on economic activities, leading to a contraction of 0.2% in the real GDP. The government's fiscal and primary balance targets were significantly missed due to lower-than-planned tax revenues and reduced subsidies, despite notable fiscal policy measures implemented in the latter half of the fiscal year. Commenting on the challenges faced by the economy, Dr. Sajid Amin Javed, renowned economist and Deputy Executive Director and founding head of the Policy Solutions Lab at the Sustainable Development Policy Institute (SDPI), said, "The contraction in real GDP is a concerning indicator of the economic hurdles faced by Pakistan. The missed fiscal targets highlight the need for a comprehensive strategy to enhance revenue collection and manage government spending effectively," he said. In response to these challenges, the State Bank of Pakistan maintained a contractionary policy stance, raising the policy rate by a cumulative 825 basis points during FY23.

While acknowledging the short-term implications on economic activity, the GAR FY23 emphasized the necessity of these measures to meet external debt obligations and ensure macroeconomic stability over the medium term. Dr. Amin provided insights on this aspect, stating, "The growth in the financial sector, particularly in Islamic banking institutions, reflects resilience amidst economic challenges. The banking sector's stability is crucial for overall economic recovery." As Pakistan navigates these economic headwinds, the report underscores the importance of the SBP's continued efforts towards financial inclusion, gender equality, and digitization of financial services. The central bank remains committed to achieving price stability, and experts anticipate a strategic fiscal approach to mitigate inflationary pressures and foster sustainable economic growth in the medium term.

Credit: Independent News Pakistan (INP)