Pakistan’s economy struggles with stagflation for second year, records 2.4pc growth

Pakistan’s economy remained in the grip of stagflation for the second consecutive year, growing by only 2.4 per cent amidst a soaring inflation rate of 26pc during the outgoing fiscal year. This economic environment has exacerbated poverty and prompted the government to adopt measures that have significantly slowed economic activity.

The 109th meeting of the National Accounts Committee (NAC), chaired by Secretary Ministry of Planning Awais Manzur Sumra, was held on Tuesday to review and approve the nation’s economic performance indicators, including output, savings, and investments.

The Pakistan Democratic Movement (PDM) government, led by Prime Minister Shehbaz Sharif, had set an ambitious annual growth target of 3.5pc for the fiscal year 2023-24. However, the Ministry of Planning announced post-NAC meeting that the Gross Domestic Product (GDP) grew by 2.38pc, falling short of the target yet surpassing projections by International Financial Institutions (IFIs). The International Monetary Fund (IMF) had anticipated a growth rate of 1.8pc for this fiscal year. In contrast, last year, the economy saw a contraction of 0.21pc, marking a slight rebound primarily attributed to the agricultural sector’s improved performance.

Despite the modest growth, it was insufficient to outpace the country’s population growth. The agricultural sector posted a notable 6.3pc growth due to excellent crop yields and recovery in cotton production. Conversely, the industrial and services sectors experienced subdued growth, reflecting broader economic challenges.

Persistent high inflation, averaging 26pc over the first ten months of the fiscal year, has eroded purchasing power, while the World Bank estimates that nearly 40pc of Pakistan’s population lives in poverty. The Bank also warns that another 10 million people may fall below the poverty line by year’s end.

Looking ahead, the government aims to set a GDP growth target of 3.7pc and an inflation target of 11.8pc for the next fiscal year. This year’s economic performance highlighted significant achievements in the agricultural sector, including record wheat production of 31.4 million metric tonnes, an 11.6pc increase from the previous year. Additionally, rice production surged by 35pc to 9.9 million tonnes, boosting exports and foreign currency earnings. Cotton production also saw a remarkable recovery, with a 108pc increase to 10.2 million bales following the devastation of the 2022 floods.

However, the industrial sector’s growth was a mere 1.21pc, far below the government’s target. This stagnation was largely due to stringent import restrictions and a high-interest rate environment, with the central bank maintaining a historically high rate of 22pc to curb inflation. Despite these measures, inflation remained well above the annual target of 21pc.

The electricity, gas, and water supply sector contracted by nearly 11pc, driven by a significant decline in electricity output as consumers shifted away from the national grid due to high costs. The IMF has recommended that the government base its electricity consumption projections for the next fiscal year on realistic assumptions, including expected economic growth rates.

Despite some growth in the construction sector, which expanded by 5.9pc, and the services sector, which grew by 1.21pc, other areas such as information and communication, and financial and insurance activities experienced contractions of 3pc and 9.6pc, respectively.

The NAC’s revised quarterly GDP growth rates were 2.71pc for the first quarter, 1.8pc for the second quarter, and an estimated 2.1pc for the third quarter. These figures contributed to an annualised growth rate of 2.4pc for the fiscal year.

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