PAKISTAN’S economic growth has slowed in the second quarter of the ongoing fiscal year from a year ago as the modest increase in the agriculture and services sectors was largely offset by contraction in big industry output. Overall, GDP accelerated by 1.73pc during the October-December period, marking a slight decline from the 1.77pc recorded in the same period last year. The modest growth in the size of the economy is, however, slightly faster than in the first quarter of the current fiscal. This is in spite of the upward revision in the provisional estimates for the first quarter from 0.92pc to 1.34pc, according to the National Accounts Committee. Deceleration in the growth rate does not come as a surprise in the midst of falling public and private investments and shrinking domestic consumption on the back of higher borrowing costs, dollar liquidity crunch driving unannounced import curbs, and the shrinking purchasing power of middle-class consumers. Nevertheless, the slower GDP growth is in line with the State Bank’s projection of a 2.5-3.5pc expansion in the size of the economy during FY25. The Asian Development Bank has projected a 3pc increase in Pakistan’s GDP and the IMF 3.2pc.

Indeed, the economy has come a long way from the brink of default in the past 18 months as pointed out by the IMF mission chief in his statement on the finalisation of the staff-level agreement with Pakistan over the first review of its current Extended Fund Facility of $7bn. Macro indicators are in far better shape today and the markets that were gripped by volatility until a year and a half ago have stabilised. Inflation has declined to its lowest level since 2015, financial conditions have improved, sovereign spreads have narrowed significantly, and external balances are stronger, the IMF notes. Yet growth recovery remains weak and is unlikely to pick up pace anytime soon due to structural issues — entrenched by decades of wrong policy choices — that the economy confronts. Any push for faster growth is bound to lead us back into another bigger crisis. The emerging geopolitical challenges marked by the tightening of global financial conditions and rising protectionism are other reasons the country should stay the course of stabilisation by implementing policy reforms and avoiding the temptation to pursue rapid growth. Once the economy finds a solid footing for itself, rapid growth will follow automatically.

Published in Dawn, March 28th, 2025