The Asian Development Bank (ADB) has projected a promising economic outlook for Pakistan, forecasting a 2.8% GDP growth for FY2025. This projection follows the government’s strict adherence to reforms under the International Monetary Fund’s (IMF) 37-month Extended Fund Facility (EFF). According to the ADB’s September 2024 report, Pakistan’s growth has already rebounded to 2.4% in the current fiscal year due to improved foreign exchange reserves and stable bilateral inflows.
The ADB Country Director for Pakistan, Yong Ye, emphasized the importance of consistent reforms, stating, “Islamabad’s economic prospects depend on steadfast policy reforms to stabilize the economy and build fiscal buffers.” These reforms include consolidating public finances and encouraging private-sector growth to fuel long-term development.
Inflation and Debt Management
The report also highlighted that inflation, which peaked at 29.2% in 2023, has dropped to 23.4% in FY2024 and is expected to further decrease to 15% by FY2025. The reduction is attributed to monetary policy regulation, a stable exchange rate, and improved agricultural production, which helped curb food prices. The report also mentioned that public debt, which currently consumes 60% of fiscal revenues, is expected to decline as a percentage of GDP, though challenges remain in managing interest payments.
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The ADB stressed that continued efforts to stabilize the economy through fiscal discipline are critical, as any lapses in policy implementation could jeopardize external financing inflows and exacerbate sovereign debt vulnerabilities.
Private Sector and Investment Prospects
The ADB noted that private-sector investment is expected to pick up as macroeconomic conditions improve, particularly with easier access to foreign exchange. “Private investment should rebound under more favorable conditions, benefiting manufacturing and services,” the report said. Additionally, higher agricultural income and remittances have boosted private consumption, while an increase in international reserves from 1.8 months of import cover to 2.1 months is anticipated in FY2025.
Nevertheless, the ADB warned that Pakistan’s economic outlook remains vulnerable to global financial risks, geopolitical developments, and rising oil and food prices. Timely disbursements from international partners will be essential in mitigating these risks and maintaining stability.
In the long run, the ADB foresees moderate growth but warns that higher income tax rates and reduced government spending may constrain consumption. Despite these challenges, the report remains optimistic that the reform agenda will lay the foundation for sustained growth, providing a stable macroeconomic environment for future prosperity. The report concluded, “The IMF program has improved investor confidence, ensuring that Pakistan is on the path to recovery.”