Government Policies and Fiscal Discipline: Pakistan's government initiated a series of robust policy measures to stabilise the economy amidst persistent challenges such as inflation, fiscal mismanagement, and external vulnerabilities. A renewed focus on fiscal discipline, coupled with comprehensive reforms at the Federal Board of Revenue (FBR), was pivotal. The Stand-by Arrangement with the International Monetary Fund (IMF) was successfully concluded, leading to the adoption of an extended stabilisation and home-grown growth programme.
Macroeconomic Stabilisation Efforts
Government Policies and Fiscal Discipline: Pakistan's government initiated a series of robust policy measures to stabilise the economy amidst persistent challenges such as inflation, fiscal mismanagement, and external vulnerabilities. A renewed focus on fiscal discipline, coupled with comprehensive reforms at the Federal Board of Revenue (FBR), was pivotal. The Stand-by Arrangement with the International Monetary Fund (IMF) was successfully concluded, leading to the adoption of an extended stabilisation and home-grown growth programme.
In FY2024, Pakistan's real GDP posted a growth of 2.38 per cent, a significant recovery from the previous year's contraction of 0.21 per cent. This turnaround was fueled by the agricultural sector, which recorded a remarkable growth of 6.25 per cent -- the highest in 19 years. The industrial and services sectors also showed resilience, with each achieving a growth of 1.21 per cent.
Agriculture: A Beacon of Growth: The agricultural sector emerged as the main driver of economic growth, contributing significantly to food security and price stability. Key crops such as wheat, rice, and cotton witnessed double-digit growth rates. For instance, cotton production surged by 108.2 per cent to 10.22 million bales. The success in agriculture was bolstered by favorable weather conditions, timely policy support, and enhanced access to agricultural credit and inputs.
Industrial and Services Sectors: Despite global supply disruptions and domestic market challenges, Pakistan's industrial sector posted a modest growth of 1.21 per cent. Notably, large-scale manufacturing saw a slight decline, but sectors like pharmaceuticals and machinery & equipment registered impressive growth. The services sector, which constitutes 57.7 per cent of GDP, also recorded a moderate growth of 1.21 per cent, reflecting improved economic activities and consumer confidence.
Tackling Inflation: Inflation remained a pressing challenge throughout FY2024. However, a combination of monetary tightening, fiscal consolidation, and favourable global commodity prices contributed to a downward trend in inflation by the third quarter. The headline CPI inflation averaged 24.5 per cent during July-May FY2024, a significant improvement compared to the previous year.
External Account and Foreign Exchange Reserves: Pakistan's external account showed marked improvement, with the current account deficit narrowing significantly by 94.8 per cent to $0.2 billion. This was achieved through stringent controls on imports and a concerted effort to boost exports and remittances. Foreign exchange reserves increased to $14.6 billion by the end of May 2024, providing a cushion against external shocks and bolstering investor confidence.
Fiscal Deficit and Revenue Mobilisation: Fiscal consolidation efforts yielded positive results, with the fiscal deficit remaining manageable at 3.7 per cent of GDP. Revenue mobilisation improved considerably, driven by enhanced tax collection measures under the Finance Act 2023. Total revenues grew by 41.0 per cent during July-March FY2024, reflecting the government's commitment to strengthening public finances.
Public Debt and Financing: Total public debt stood at Rs67,525 billion by the end of March 2024, with domestic debt accounting for Rs43,432 billion. The government prioritised long-term domestic debt securities to manage fiscal deficits effectively, reducing reliance on short-term borrowings. Efforts to diversify the investor base through innovative instruments such as Sukuk further stabilised debt management.
Education and Health: The government allocated significant resources to education and health, recognising their critical role in sustainable development. An allocation of Rs69.7 billion was made to higher education, while Rs25.3 billion was earmarked for health sector projects in the Public Sector Development Programme (PSDP). These investments aim to improve literacy rates, enhance healthcare delivery, and support social protection initiatives.
Information Technology and Telecommunications: The IT and telecommunications sector continued to thrive, with IT export receipts surging by 17.4 per cent to $2,283 million. Initiatives to support freelancers and startups contributed to the sector's robust performance, positioning Pakistan as a competitive player in the global digital economy.
Pakistan's journey towards economic stabilisation and growth in FY2024 underscores the importance of sound policy management and sectoral reforms. While challenges persist, the positive trends in key economic indicators signal a path towards sustainable and inclusive growth. Continued focus on fiscal discipline, external account stabilization, and strategic investments in high-potential sectors will be crucial in realizing Pakistan's economic aspirations in the coming years.
The writer is a research associate at the Sustainable Development Policy Institute (SDPI).
