Political Stability After Polls Can Boost Business: ADB

News Desk

Islamabad: Political stability after the upcoming elections in Pakistan, if achieved, will boost business confidence as will a new standby arrangement agreed with the International Monetary Fund to support economic stabilisation and rebuild fiscal buffers, stated the Asian Development Outlook (ADO) for September 2023.

The report revised down the country’s growth estimate for FY2023 to 0.3 percent (0.6 percent forecast in April).

ADO has slightly revised Pakistan’s growth target to 1.9 percent for the fiscal year 2023-24 against its projections of 2 percent made in April 2023.

According to the report, in fiscal year 2023 (FY2023, ended June 30, 2023), the economy was buffeted by severe floods, global price shocks and political instability.

Expansionary fiscal and monetary policies hit their limits. Growth fell, inflation jumped, the Pakistani rupee weakened and international reserves shrank. In response, fiscal and monetary policy have been tightened.

According to the report, the revised projection assumes a modest rebound in demand, with private consumption and private investment growing by about 3 percent and 5 percent, respectively.

Fiscal and monetary tightening will crimp demand as will inflation which will stay in double digits. On the other hand, implementation of the economic adjustment program and a likely smooth general election should boost confidence, while the easing of import controls should support investment as fiscal tightening restrains public consumption.

On the output side, better weather conditions will enable an increase in the area under cultivation and in yields, supporting recovery in agriculture.

The government’s relief package of free seeds, subsidised credit and fertilizer will also help. In turn, the recovery of farm output will feed through to industry which will also benefit from the increased availability of critical imported inputs.

Adherence to an economic adjustment program through April 2024 will be critical for restoring stability and the gradual recovery of growth which is projected to reach a moderate 1.9 percent in FY2024 with price pressures remaining elevated.

The recovery of output will enable exports to pick up, although imports will grow much faster due to pent-up demand. However, the downside risks are significant, including from global price shocks and slower global growth. Agencies