ISLAMABAD: The Asian Development Bank (ADB) on Wednesday forecast Pakistan’s economic growth rate to slow down to 4 per cent this year from 5.6pc in FY21 owing to tighter fiscal and monetary policies and Russia-Ukraine war fallout.

In its annual flagship publication Asian Development Outlook (ADO) 2022, the Manila-based lending agency said Pakistan’s revenue collection was still lower when compared with peers and needed a strong reform effort to achieve its tax-to-GDP potential of 22-25pc.

The ADB projected growth in South Asia to slow to 7pc in 2022 (from 8.3pc in 2021), before picking up to 7.4pc in 2023. The subregion’s growth dynamics are largely driven by India and Pakistan. Growth in India is forecast at 7.5pc this year (against 8.9pc in 2021) and 8pc in 2023, driven by strong investment growth.

Tighter fiscal, monetary policies moderate domestic demand

“Pakistan’s growth is forecast moderating to 4pc in 2022 on weaker domestic demand from monetary tightening and fiscal consolidation before picking up to 4.5 in 2023”, the ADB said. Pakistan has a GDP growth rate target of 4.8pc for the current fiscal year.

Bangladesh’s rapid 6.9pc growth in 2021 will continue into 2022 and 2023, and growth will accelerate in Bhutan and Nepal. After a vigorous rebound in 2021, growth in the Maldives will slow but remain strong, supported by the recovery in global tourism.

Weaker growth is expected in Sri Lanka as consumption and investment remain muted due to monetary policy tightening, supply shortages, and inflationary pressures.

Interestingly, the ADB forecast is based on the revival of the IMF programme in January for fiscal and monetary tightening — a part of which had already been undone by end-February by PTI government. The bank said, “slower growth in the current fiscal year reflects the government reactivating its stabilisation programme under the International Monetary Fund (IMF) Extended Fund Facility to narrow the current account deficit, raise international reserves, and cut inflation”.

The ADB expected inflation to pick up in FY22, averaging 11pc, reflecting higher international energy prices, significant currency depreciation, and elevated global food prices from supply disruptions. Because Pakistan is a net importer of oil and natural gas, with both comprising almost 20pc of total imports, the country will continue experiencing strong inflationary pressure for the rest of the current fiscal year from the jump in global fuel prices related to the Russian invasion of Ukraine.

Published in Dawn, April 7th, 2022