In 2023, Pakistan returned from the verge of debt default. Amid the turbulence of surging inflation and budget deficit, we see that due to some corrective measures such as government fiscal reforms and cost cut, economy started getting back to stability.
What can we expect for 2024? To answer this question, China Economic Net (CEN) took an interview with Dr Abid Qaiyum Suleri, Executive Director of Sustainable Development Policy Institute (SDPI), Pakistan and member of the Pakistan Climate Change Council for some insights.
“I’m optimistic that Pakistan’s economic situation will start to improve in calendar year 2024. Elections will bring the much-needed certainty. The resolve from all mainstream political parties that they will go to the IMF for the next programme if they get a chance to form a government will ensure much-needed fiscal discipline and policy consistency. It will also help in shoring up Pakistan’s foreign exchange reserves. This in turn will improve Pakistan’s creditworthiness, too,” he said.
In its latest report “Global Economic Prospects – January 2024”, the World Bank projected Pakistan’s economic growth at 1.7% for the ongoing fiscal year 2023-24 and 2.4% in FY 2024-25, an inspiring recovery from -0.2% in the previous fiscal year. According to Suleri, two external factors can affect Pakistan’s economic performance in 2024.
One is global energy prices, which are dependent on the geopolitical tensions.
“If the Ukraine-Russia tension remains, or if the situation in the Middle East gets worse, that would have an impact on the prices, which would have an impact on our economic outlook,” he said.
The second important factor is climate change. A bad monsoon or El Nino may weigh against the agriculture sector.
“If the two external factors remain favourable, then I am quite optimistic that securing a modest GDP growth will not be difficult,” he said.
In 2023, a major improvement for Pakistan is a significant drop of trade deficit by 34.29% during the first half of the current fiscal year starting from July 2023 compared to the corresponding period of the last fiscal year.
In particular, Pakistan’s exports to China during July-December 2023 rose by 66.4%, reaching $1.546 billion.
“This trend is expected to continue in 2024,” he said, explaining that the re-opening of China’s border after Covid-19 restrictions, the resilience of China’s economy as proven by the way it handles the real estate risks, and the substantial demand in the second largest market globally will continue to benefit Pakistan, as with many other countries that are economically inter-related with China. “To have a clearer picture of Pakistan’s economic outlook for 2024, we need to go back to 2023. There are at least two lessons domestically that can take us to 2024,” he told a CEN reporter.
Read Pakistan’s economy stuck in ‘low-growth trap’: WB
“The first lesson is Pakistan should have consistent relations with the last resort, ie, the IMF,” he analysed, adding that Pakistan, unfortunately, like many of the debt-affected countries, has to remain under the IMF umbrella.
“We saw that once we went back from the IMF with the $3 billion standby agreement, things started to come under control. When the government was reluctant to go to the IMF and turned to the friendly countries for help, we realised that they would also like Pakistan to go back to the IMF discipline,” he said. The second lesson is about the necessity to take some administrative measures through the Special Investment Facilitation Council (SIFC).
“After taking the IMF programme, we saw that in September 2023, the value of PKR versus USD got a shot up to almost 350 in the open market. There were problems of energy, misuse of trade subsidies, hoarding, panic around currency, etc.
“That’s where SIFC came into action. After corrections were given, we saw the value of PKR against USD come back to 285. We saw a major crackdown on energy cheating. We saw the control on misuse of Afghan transit trade agreement. With administrative actions put into place, things can be smooth,” he said. A prominent challenge for Pakistan within sight is the transition to a greener economy.
For long, it had been seen that going green would have a negative impact on growth. That hypothesis is no longer valid. Now, countries, aware that the cost of protection is high, have to go green.
“But the cost of transition is high. So at the multilateral level, we should keep talking about climate justice and the historical responsibility of advanced economies,” he said.
This article by Wang Kai originally appeared in The China Economic Net
Published in The Express Tribune, January 20th, 2024.
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