THE State Bank has slashed its GDP growth projection for the current fiscal year to below its previous estimates of 3pc to 4pc, citing huge flood-induced devastation and the stabilisation policy being implemented to fix macroeconomic imbalances as the major factors. In its annual report for FY22, published on Wednesday, the State Bank, however, refrained from giving any new projection in view of an uncertain economic outlook for the rest of the fiscal. This is so in spite of the fact that the State Bank had revised down its growth estimates to 2pc in its monetary policy statement last month. Many expect growth to decelerate to below 1pc at the end of the year, owing to multiple macroeconomic challenges intensified by the floods and the ongoing political instability. The slowing GDP growth should be cause for concern, considering the rapid increase in Pakistan’s dependent population — those under 14 and over 60 — that, the central bank says, is highest in the world after Nigeria, and which may contribute to the country’s economic woes as we already have a large inefficient, burgeoning labour force in search of jobs. But should low GDP growth be our top worry at the moment, with the cash-starved government struggling to secure foreign financing of $32bn to $34bn to meet its debt payment obligations?

That the economy was poised to lose its growth momentum was clear long before the destructive summer floods hit a third of the country, washing away crops, cattle and infrastructure, as well as displacing millions of people in their wake. The coalition government had started to put brakes on growth shortly after it came to power in April to avert an imminent threat of a sovereign default on the back of balance-of-payments and currency crises. The erosion in the State Bank’s foreign exchange reserves on maturing debt payments and drying foreign inflows has seen the rupee lose over 27pc of its value and triggered a sustained bout of headline consumer inflation, with food prices increasing by a monthly average of above 31pc between July and November. This underlines that strengthening of the external sector to ward off risk of default in the medium to long term and a reduction in inflation should be the top priorities of our policymakers at the moment, even if it requires further suppression of economic growth. Any attempt to grow the economy under political pressure will only deepen the crisis.

Published in Dawn, December 23rd, 2022