- Asian Development Outlook Supplement highlights SBP among most aggressive central banks in region
The Asian Development Bank (ADB) has projected Pakistan's GDP growth to recover slightly in FY2023, supported by structural reforms.
The bank, in its latest Asian Development Outlook Supplement, stated that GDP growth in Pakistan is expected to moderate in FY22 (ended 30 June 2022) on fiscal tightening measures to manage growing demand pressures and contain external and fiscal imbalances.
Meanwhile, the bank marginally revised inflation in Pakistan for FY22 and substantially for FY23, as the country’s inflation spiked from 12.3% in December 2021 to 21.3% in June 2022.
“In addition to the effects of elevated global energy and food prices, the government’s efforts to revive the stalled International Monetary Fund (IMF) programme has meant raising power tariffs and withdrawing subsidies in the oil and power sectors,” said ADB.
The report highlighted that the State Bank of Pakistan (SBP) was among the most aggressive central banks in the region, hiking interest rate by 525 basis points since January 1, second only to Sri Lanka, which has jacked its policy rate by 950 bps in the last six months.
Moreover, the ADB slashed its 2022 growth forecast for developing Asia and warned economic conditions could worsen, as the war in Ukraine and supply chain disruptions drive up prices.
While the impact of Covid-19 had eased, the region was now grappling with the fallout from Russia’s invasion of Ukraine, lockdowns in China and aggressive interest rate hikes, the Manila-based lender said.
To reflect the deterioration across developing Asia – which stretches from the Cook Islands in the Pacific to Kazakhstan in Central Asia – the bank cut its 2022 growth forecast to 4.6%.
That compares with its previous prediction in April of 5.2% and the 6.9% growth chalked up last year.
Meanwhile, South Asia’s economy is expected to expand less than Asian Development Outlook 2022’s projection.
“This mainly reflects a modest downward revision to India’s forecast GDP growth due to higher-than-anticipated inflation since April and monetary tightening, and Sri Lanka’s sharp GDP contraction due to the country’s sovereign debt and balance-of-payment crises.
“The growth prospects for the subregion’s other economies are largely unchanged as various positives balance out global headwinds. On balance, the growth forecast for South Asia is revised down from 7.0% to 6.5% for 2022 and from 7.4% to 7.1% for 2023,” said ADB.