Polls, reforms likely to help stabilise Pak economy: ADB

ISLAMABAD: The Asian Development Bank (ADB) said in a report on Wednesday that smooth conduct of upcoming general election and the reform programme were likely to help stabilise the country’s economy and restore investors confidence in it.

The ADB’s Outlook said: “Implementation of the economic adjustment programme and a likely smooth general election should boost confidence, while the easing of import controls should support investment as fiscal tightening restrains public consumption.”

The bank also lowered down Pakistan’s GDP growth to 1.9 per cent against official projection of 3.5 percent and stated that “persistent political instability” would remain a key risk to implementing reforms toward growth stabilisation, restoration of confidence and sustainable debt.

The ADB also projected inflation at 25 percent for FY24 against Pakistan’s official projection of 21 percent for the current financial year.

“Downside risks to the outlook remain exceptionally high. On the external front, tighter global financial conditions and potential supply chain disruptions from any escalation of the Russian invasion of Ukraine will weigh on the economy. Amid the upcoming election season, persistent political instability will remain a key risk to implementing reform toward growth stabilisation, the restoration of confidence, and sustainable debt. Disbursement from multilateral and bilateral partners would remain crucial for reserve accumulation, exchange rate stability, and improved market sentiment,” added the report.

The ADB says that the economy’s near-term prospects will heavily rely on progress under the economic adjustment programme, which aims to stabilise the economy and rebuild buffers for domestic and external balance, thereby providing a foundation for a possible successor programme under the new government expected to be elected in the first quarter of calendar year 2024.

The programme involves fiscal consolidation, monetary tightening, and a return to a market-determined exchange rate, as well as structural reforms in energy, state-owned enterprises, banking, and climate resilience. The economy is projected to recover modestly in FY2024 with base effects from the post-flood recovery.

Uncertainty will linger, though, and stabilisation measures will limit the growth of demand. Growth in FY2024 is projected to be 1.9pc, slightly lower than the ADO April 2023 forecast. The revised projection assumes a modest rebound in demand, with private consumption and private investment growing by about 3pc and 5pc, respectively. Fiscal and monetary tightening will crimp demand, as will inflation, staying in double digits, said the report.