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Economy to shrink 3.5% in fiscal 2023 amid strong climate headwinds: ADBATN News

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ISLAMABAD: Pakistan’s economy is projected to contract by 3.5 percent in fiscal 2023, amid devastating floods, policy tightening and critical efforts to tackle significant fiscal and external imbalances, the Asian Development Bank (ADB) said in a report on Wednesday.
While growth is expected to be 6.0% in FY 2022, a slowdown is forecast in FY 2023 (ending June 30, 2023).
According to the Asian Development Outlook (ADO) 2022 update, gross domestic product (GDP) growth in Pakistan in FY2022 was driven by higher private consumption and expansion in agriculture, services and industry – particularly large-scale manufacturing.
But the ADB’s low growth forecast also reflects double-digit inflation in fiscal 2023 — climate headwinds and Pakistan’s key policy initiatives. The latest report is an update to ADB’s annual flagship economic release.
“The recent catastrophic floods in Pakistan add profound risk to the country’s economic outlook,” said Yong Ye, ADB Country Director for Pakistan.
“We believe that flood-related reconstruction and economic reforms will encourage significant international financial support, stimulate growth and secure social and development spending to protect vulnerable populations. ADB is preparing a package of relief, rehabilitation and reconstruction to support people, livelihoods and infrastructure in the immediate and long term,” Yong Ye added.
The economic outlook will largely be shaped by the restoration of political stability and continued implementation of reforms under a renewed IMF program to stabilize the economy and restore fiscal and external buffers.
According to the update, private consumption increased by 10% in fiscal 2022, as a result of improved working conditions and higher household incomes.
Agricultural production rose 4.4% in fiscal 2022, supported by strong performance in crops and livestock. Agriculture growth is expected to moderate next year due to flood damage and higher input costs, which may dampen service growth, particularly wholesale and retail trade.
In FY2023, fiscal adjustment and monetary tightening are expected to dampen domestic demand. Depreciation of the rupee will reduce industrial production, along with capacity and input constraints created by higher import prices.
Inflation rose sharply in the fourth quarter (April-June) of fiscal 2022, fueled by the removal of fuel and electricity subsidies, a significant depreciation of the rupee and a rise in international commodity prices.
Inflation rose to 21.3% in June, the highest since 2008, pushing average inflation to 12.2% in FY2022. Inflationary pressures will be high in FY2023, with inflation rising to 18%.
In addition to flooding, higher inflation rates and potential financial meltdowns as general elections approach and higher-than-projected increases in global food and energy prices remain downside risks to the outlook, the report added. – Processor

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