World Bank Forecasts Pakistan’s GDP to Grow By 2.3% in FY25

The World Bank has projected Pakistan GDP growth rate at 2.3 percent for fiscal year 2024-25. The Bank in its latest report “Global Economic Prospects”, stated that growth in Pakistan is expected to pick up to 2.3 percent in fiscal year 2024-25 and 2.7 percent in 2025-26. Industrial activity and confidence are projected to improve mainly due to easing import restrictions and moderating inflation, although they remain constrained largely as a result of tight macroeconomic policies. The expected increase in growth assumes continued sound macroeconomic management, progress with structural reform implementation, and continued multilateral inflows and bilateral rollovers, which would boost investor confidence. The report noted that activity in Pakistan has improved but remains subdued, with output set to expand 1.8 percent in fiscal year 2023-24 (July 2023 to June 2024), following a contraction of 0.2 percent in the previous fiscal year. Industrial production picked up in late 2023 to early 2024 after import controls were relaxed following an improvement in the country’s foreign reserve positions. Policy uncertainty remains elevated—despite easing from levels seen during bouts of political uncertainty over the last two years. Moreover, monetary and fiscal policies have remained tight and, together with import and capital controls aimed at fostering stability, have continued to constrain activity. The report noted that in Pakistan, inflation has moderated over the past year due to high base effects coupled with the stabilization of the exchange rate, but it remains high. Reflecting the persistence of inflation, policy rates have been lifted in most countries in the region. Several developments have contributed to reductions in external imbalances. For example, trade deficits have narrowed, including in India. Other factors include increases in remittances and recoveries in tourism in several countries, as well as the effects of continued import restrictions, particularly in Bangladesh. Foreign exchange reserves have increased in several countries, including Pakistan and Sri Lanka, reflecting the easing of currency pressures and receipts of official flows, but reserve levels in some countries remain low. Inflation in the region is envisaged to moderate, supporting private consumption and contributing to monetary policy easing, although it is expected to remain elevated, particularly in Pakistan. In SAR, economic spillovers from outside the region tend to be limited, because the region is generally less open to international trade than other parts of the world. However, weaker-than projected growth in major trading partners could damage growth in several countries, particularly Bangladesh, Pakistan, and Sri Lanka. For example, China accounts for a high share of imports of intermediate goods in these countries, and softer than-projected activity in China could cause a decline in receipt of intermediate goods, which would result in shortages in input materials and dampen activity. In addition, countries in Europe are the main export destinations for these countries, and weaker-than-expected demand in Europe, particularly the euro area, could cause a slowdown in export activity.