Business & Finance

ADB says Pakistan's economy to grow at 4% in FY22

  • Forecast is lower than what the government is targeting
Published September 22, 2021

After Fitch Solutions projected Pakistan's economy to grow by 4.2%, the Asian Development Bank said the country's growth would be 4% in FY22 after rebounding to 3.9% in FY21, as business activity gradually resume in the second year of the Covid-19 pandemic.

According to the Asian Development Outlook (ADO) 2021 Update, Pakistan’s economy is expected to continue recovering in FY22, supported by stronger private investment, improving business activity, a steady vaccine rollout, and economic stimulus measures for FY2022.

However, the projections by both Fitch and the ADB are lower than what the government has targeted. In FY22, Pakistan is looking to achieve growth of around 4.8%.

Fitch Solutions sees Pakistan's real GDP growth at 4.2pc in FY22

“Pakistan’s economy is on the path to recovery, supported by promising growth in the industry and services sectors,” said ADB Country Director for Pakistan Yong Ye.

“The continued rollout of the COVID-19 vaccination program, structural reforms, and the expansion of social protection programs are all key to ensuring inclusive and sustainable growth. Fiscal incentives and policies to boost export competitiveness, bolster the performance of the manufacturing sector, and augment private investment will continue to play an instrumental role in strengthening the economic outlook.”

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The ADB report said that Pakistan’s economic growth in FY2021 was supported by improved Covid-19 containment strategies through the second and third waves of infections and continued accommodative fiscal and monetary policies that accelerated the recovery across all sectors.

Growth in industry, predominantly construction and small-scale manufacturing, and services are forecast to improve in FY2022. Agriculture is also expected to continue supporting GDP growth.

It said that the inflation rate declined to 8.9% in FY2021. "However, food price inflation remained high due to supply chain disruptions, increased prices for wheat and sugarcane, and an extended wet monsoon. Rising international oil prices boosted energy price inflation. Yet, inflation for other goods eased thanks to the appreciation of the Pakistani rupee and a postponement of planned hikes for electricity tariffs and domestic fuel prices."

ADB added that investment is expected to strengthen as global sentiment improves and the International Monetary Fund-supported stabilization program continues to progress.

ADB cuts Asia growth forecast on slow Covid vaccine rollout

Earlier, Fitch Solutions said that Pakistan’s economy is expected to record real GDP growth of 4.2 percent in the fiscal year 2021-22, up from 3.9 percent in the fiscal year 2020-21.

“We note that improving vaccination rates will buoy private consumption growth while supportive monetary and fiscal conditions will serve as tailwinds for gross fixed capital formation. Net exports will contribute negatively to headline growth as import growth is set to outpace export growth”, said Fitch Solutions in its latest report on Pakistan.

It further stated that the risk to the growth outlook is weighted to the downside.

On the domestic front, given the more virulent delta strain in the community, amid a still low percentage of the population that are fully vaccinated, a strong resurgence in Covid-19 infections could weigh heavily on growth.

On the external front, heightened security threats could lead to social instability and the destruction of infrastructure.

Meanwhile, the ADB cut its 2021 growth forecast for developing Asia on slow vaccination rates, surging infections, and crippling lockdowns.

The Philippines-based ADB forecast growth of 7.1 percent -- compared with its previous prediction in April of 7.3 percent and a slight contraction in 2020 -- but said the recovery "remains fragile".

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