Positive Trends in Global Business and Pakistan's Economic Outlook - 2023
Karobar
INTERNATIONAL PERFORMANCE AND OUTLOOK
A Resilient Global Economy
Despite facing monetary tightening measures and heightened uncertainties, the global economy is displaying signs of resilience. Projections from both the International Monetary Fund (IMF) and the World Bank suggest a path of recovery. The IMF expects a moderate decline in global economic growth, from 3.4 percent in 2022 to 2.8 percent in 2023, with a rebound to 3.0 percent in 2024. Similarly, the World Bank projects a decline to 2.1% in 2023, followed by a recovery to 2.4% in 2024.
Inflation Eases Globally
Headline inflation rates are showing signs of improvement, with the IMF anticipating a decrease from 8.7 percent in 2022 to 7.0 percent in 2023. The FAO Food Price Index has also recorded a downward trend, reflecting stability in commodity markets and improved supply-chain conditions.
GDP GROWTH PERFORMANCE AND OUTLOOK FOR PAKISTAN
Navigating Challenges in Pakistan
Pakistan faced significant economic challenges during FY2023, including international supply shocks, monsoon floods, and various domestic factors. Despite this, the National Economic Council has set an optimistic GDP growth target of 3.5% for the fiscal year 2023-24. The World Bank projects Pakistan's GDP growth for FY2024 at 2%, indicating a positive trajectory.
Sectoral Highlights
While the overall GDP growth rate for FY2023 stood at 0.29%, specific sectors exhibited noteworthy performance. The agricultural sector, despite challenges, showed growth at 1.55%, with certain crops like wheat, sugarcane, and maize displaying positive growth. The services sector, although experiencing a slow growth rate of 0.86%, remains a vital contributor to the economy.
INFLATION PERFORMANCE AND OUTLOOK
Taming Inflation
Pakistan has made strides in controlling inflation, with the State Bank of Pakistan (SBP) taking measures such as a policy rate hike to 22 percent. Average SPI inflation during July-June FY23 was 33%, a notable improvement from the previous year. The recent dip in inflation can be attributed to reduced international commodity prices and an improved exchange rate following agreements with the IMF.
PERFORMANCE OF KSE 100 INDEX
Stability in the Stock Market
The KSE-100 index recorded a modest decline of 0.21% on 27.06.2023, indicating stability in the stock market. Despite global uncertainties, the local stock market continues to show resilience.
EXTERNAL SECTOR
Improved Trade Balance
Pakistan's external sector has witnessed positive developments, with the current account deficit narrowing by 85.4% during FY23. The overall trade balance improved by 44.75%, reflecting a decline in imports. While Foreign Direct Investment (FDI) saw a decline, recent developments, including inflows from Saudi Arabia and the UAE, signal renewed confidence.
EXCHANGE RATE
Managing Economic Uncertainties
The exchange rate recorded at 290 rupees per dollar on 30th June, 2023, reflects the impact of political and economic uncertainties. The real effective exchange rate recorded at 87.75 in June 2023 as compared to a value of 94.86 in June 2022, reflecting a decline of 7.54%. However, the real effective exchange rate suggests that Pakistan's currency is undervalued, offering a competitive edge for exports.
RESERVES WITH SBP
Addressing Fiscal Challenges
Foreign exchange reserves with SBP recorded at $4.46 billion on 30th June, 2023 as compared to $9.82 billion on 30th June, 2022, marking a decline of 54.5%. Total foreign exchange reserves recorded at $9.75 billion on 30th June, 2023 as compared to $15.45 billion on 30th June, 2022, marking a decline of 36.9%.
TOTAL DEBT
Balancing Fiscal Responsibilities
Total debt for FY23 reached Rs. 69.2 trillion (Domestic debt 36.7 trillion and external debt amounting to Rs. 32.5 trillion), marking a significant increase of 35.4%. The rise in total debt for FY23 can be attributed to various factors, including substantial financing requirements and currency depreciation. Despite the increase, Pakistan is actively working on managing its debt while focusing on economic stability.
