This is an appropriate time to evaluate the initial performance of Pakistan’s economy in the first half of 2024-25, in relation to the IMF programme targets for the year. Any major deviations are likely to feature in the forthcoming first review of the three-year Extended Fund Facility.

The IMF programme expectations are that in 2024-25 the economy of Pakistan will stabilize significantly while achieving a modest improvement in the GDP growth rate. The inflation rate will fall sharply and the two deficits, both in the budget and in the current account, becoming more manageable or remaining low.

The first indicator of the state of the economy is the GDP growth rate. The programme expects this to be 3.2% in 2024-25. This will represent a modest improvement over last year’s growth rate of 2.4 percent.

However, the unfortunate reality is that in the first quarter of 2024-25, the economy registered a very low growth rate of only 0.9 percent. Two sectors have performed poorly. These are major crops and large-scale manufacturing, with growth rates respectively of negative 11 percent and negative 1 percent.

The message is clear. Pakistan’s growth has been stifled by a number of negative factors. The large-scale manufacturing sector faces a tax burden, which is over four times the national average. In addition, there has been substantial cost-push inflation due to the escalation in electricity and gas tariffs.

The export industries are seeing a loss of profitability and ability to compete due to the process of increasing overvaluation of the rupee. After a gap of seven years, the Real Effective Exchange Rate index has gone significantly beyond 100 to 108, implying that there is need for some downward adjustment in the value of the rupee.

SBP will need to follow a more market-oriented policy on the exchange rate.........

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