The Asian Development Bank has projected that Pakistan’s economy will experience a gradual recovery in the current fiscal year and show slight improvement in the following year, provided that economic reforms are implemented.

However, the country faces risks stemming from political uncertainty. The forecast suggests that Pakistan’s growth is anticipated to rise by 1.9% in FY2024 and 2.8% in FY2025, rebounding from a 0.2% contraction in the previous fiscal year.

This growth will be primarily fueled by a resurgence in agriculture and industry, although domestic demand may be constrained by escalating living costs and stringent macroeconomic policies.

Political uncertainty poses a significant threat to the sustainability of stabilization and reform efforts, while potential disruptions in the supply chain resulting from conflicts in the Middle East could adversely affect the economy.

Pakistan’s heavy reliance on external financing underscores the critical need for support from both multilateral and bilateral partners, although challenges in policy implementation could impede these inflows.

The report recommends that additional assistance from the International Monetary Fund (IMF) to support a medium-term reform agenda could enhance market sentiment and attract more affordable external financing. The economy had contracted in the previous year due to a combination of factors including floods, political unrest, and policy setbacks, resulting in a decline in GDP. Private consumption growth decelerated, while net exports made a positive contribution to growth due to stringent import controls.

Inflation is projected to remain elevated in FY2024 but is expected to ease in FY2025, driven by energy prices and inflation expectations. Tax collection has seen a significant increase, with reforms in personal income tax and property transfers contributing to higher direct tax collections. The report also underscores the low financial inclusion rate for women in Pakistan, emphasizing the need for measures to address the barriers they face in accessing financial services.