Pakistan Economic Outlook
GDP grew just 0.3% in the last fiscal year (July 2022–June 2023). Activity was blunted by floods, government austerity and a balance-of-payments crisis. Turning to the present fiscal year, the economy seems to be heading toward recovery. The government secured a USD 3 billion bailout with the IMF in July, avoiding an impending default, rebuilding international reserves and unlocking further funding from other creditors. That said, to secure the bailout, the government was forced to cut subsidies for electricity and fuel. This has likely kept economic activity weak, along with a dollar shortage caused by stringent FX controls. Merchandise imports slumped 26% year on year in July–August, suggesting tepid consumer demand, and business activity continued to worsen in July, according to PMI data. In addition, business and consumer sentiment remained pessimistic in July.
Inflation fell to 27.4% in August (July: 28.3%). Inflation should soften from current levels later in CY 2023 and in CY 2024 on a tougher base effect. Nonetheless, the past removal of some currency controls and fuel subsidies will keep inflation far above its 10-year average of 8.0%. Key upside risks include El Niño, currency weakness and rising oil prices.