Karachi, The State Bank of Pakistan’s latest annual report paints a detailed picture of a nation’s economy grappling with multifaceted challenges. From natural disasters such as floods to the global fallout from the Russia-Ukraine conflict and surging commodity prices, the nation witnessed disruptions at both domestic and international levels. These elements combined to substantially weaken Pakistan’s macroeconomic performance for the fiscal year 2022-23.

According to a new release by the State Bank of Pakistan, the report underscores the manifold issues Pakistan faced during FY23, many of which were intensified due to inherent structural weaknesses. Significant events included unexpected floods that intensified inflationary pressures and the delay in the 9th review of the IMF’s Extended Fund Facility program. These factors led to Pakistan’s real GDP growth plummeting to its third-lowest since FY52, and the National CPI inflation skyrocketing to highs not seen in decades.

While the current account deficit narrowed, limited foreign inflows continued to exert pressure on the external account, resulting in a drop in the SBP’s foreign exchange reserves. On the fiscal front, higher interest payments, large energy subsidies, and a below-target tax collection hindered fiscal consolidation during FY23.

The report emphasizes the critical need for Pakistan to address its long-standing structural challenges to maintain macroeconomic stability. Among the most pressing issues are the slow pace of tax policy reforms, inefficiencies in public sector enterprises, and inadequate investment in both physical and human capital, which together have hampered the country’s economic progress. The report notes that these issues have limited the country’s ability to adapt to global changes, such as shifts in supply chains, and have increased its dependence on imported food commodities.

The SBP report insists on the importance of reforms across various sectors to ensure resource availability for sustained economic growth and development. From expediting tax policy changes to implementing governance reforms and supporting foreign direct investment in export sectors, these reforms are paramount.

Additionally, the report includes a dedicated chapter on refining Pakistan’s National Statistical System (NSS) to further facilitate evidence-based policymaking.

Nevertheless, amidst these challenges, the report identifies early indicators of economic recovery. A secured US$ 3.0 billion Stand-By Arrangement from the IMF towards the end of FY23 has provided some relief. Data from July 2023 suggests a potential resurgence of economic activity. Based on these considerations, the SBP is forecasting a real GDP growth between 2 – 3 percent for FY24. It also predicts a decline in inflation to the range of 20.0 – 22.0 percent, and a drop in the current account deficit to between 0.5 – 1.5 percent of GDP for FY24.