1 Economic Review

1 The analysis and projections presented in this report were

prepared on data outturns for FY23 and finalized in
1.1 Overview1 September 2023, using data and developments as of then.

Pakistan’s economy faced multiple challenges Selected Economic Indicators Table 1.1
during FY23, as lingering structural weaknesses FY21 FY22 FY23
amplified the impact of successive domestic and Growth rate* (percent)
global supply shocks of unprecedented nature. Real GDP a 5.8 6.1 0.3
The country’s macroeconomic situation had Agriculture 3.5 4.3 1.6
already started to deteriorate since the second Industry 8.2 6.8 -2.9
half of FY22 amid the fallout of Russia-Ukraine o/w LSM 11.5 11.9 -8.0
Services 5.9 6.6 0.9
conflict, high global commodity prices and an
National CPI (period average)a 8.9 12.2 29.2
unplanned fiscal expansion. The situation
Private sector credit b 11.2 21.1 -0.8
worsened during FY23 owing to the impact of
Money supply (M2)b 16.2 13.6 14.2
floods, delay in the completion of the 9th review Exports b 13.8 26.7 -14.1
of the IMF’s EFF program, continuing domestic Imports b 24.4 31.8 -27.3
uncertainty, and tightening global financial Tax revenue –FBR c 19.2 28.9 16.7
conditions. Exchange rate (+app/-dep)b -1.3 -9.8 -28.5
Policy rate (end-period) b 7.0 13.75 22.0
A large supply shock in the form of floods that billion US dollars
hit the country during the initial months of FY23 SBP’s reserves (end-period) b 17.3 9.8 4.5
weighed heavily on economic conditions. The Workers’ remittances b 29.5 31.3 27.0
resultant supply chain disruptions did not only Current account balance b -2.8 -17.5 -2.4
percent of GDP
fuel inflationary pressures and constrained
Fiscal balance d -6.1 -7.9 -7.7
economic activity, but also had implications for
Current account balance -0.8 -4.7 -0.7
the external and fiscal accounts. Likewise, the
Investment a 14.5 15.7 13.6
impact of uncertain global economic and * The numbers relating to real GDP growth rate and its sub-
financial conditions, softening – but still components for FY21, FY22 and FY23 are on constant basic
elevated – global commodity prices, higher debt prices of 2015-16 and represent final, revised, and provisional
estimates, respectively.
servicing and dearth of external inflows Sources: a Pakistan Bureau of Statistics; b State Bank of
increased stress on external account, which Pakistan; c,d Ministry of Finance
reverberated across the economy. The country
managed to meet its external debt obligations; Simultaneously, exchange rate depreciation and
however, fall in the SBP’s FX reserves along FX constraints exacerbated the impact of flood-
with negative sentiments in foreign exchange Simultaneously, exchange rate depreciation and
market, led to a large PKR depreciation during FX constraints exacerbated the impact of flood-
FY23 (Table 1.1). induced supply shortages and fanned
inflationary pressures. Lastly, global monetary
In order to reduce pressures on external account, tightening and lackluster external demand
the government and the SBP introduced various contributed to reduced exports and weak capital
temporary restrictions on imports during the inflows. These factors compounded the impact
year. The limited availability of inputs of existing structural deficiencies that have
compounded the effect of supply bottlenecks marred a sustainable expansion in Pakistan’s
and various demand compression policies in exports.
place since late FY22, restricting the pace of
economic activity, and thus exports. In addition to these supply shocks, the
longstanding inefficiencies in the energy sector,

1The analysis and projections presented in this report were prepared on data outturns for FY23 and finalized in September 2023,
using data and developments as of then.
Economic Review

State Bank of Pakistan Annual Report 2022-2023

Real GDP Growth Figure 1.1a CPI Inflation* Figure 1.1b

percent percent
12 30

10 25
8
20
6
4 15
2 10
0
5
-2
-4 0

FY72
FY75
FY78
FY81
FY84
FY87
FY90
FY93
FY96
FY99
FY02
FY05
FY08
FY11
FY14
FY17
FY20
FY23
FY52
FY56
FY60
FY64
FY68
FY72
FY76
FY80
FY84
FY88
FY92
FY96
FY00
FY04
FY08
FY12
FY16
FY20
FY23
*Base 2015-16 (NCPI)
Source: Pakistan Bureau of Statistics Source: Pakistan Bureau of Statistics

External Account Figure 1.1c Rising Interest Payments Overshadow Figure 1.1d
Fiscal Performance
Current account balance
SBP reserves Subsidies Development expenditure
Exchange rate (average) - rhs Interest payments Fiscal deficit
billion US$ PKR/US$ Tax revenues
20 300 12 percent of GDP
15 250 10
10
5 200
8
0 150
6
-5 100
-10 4
-15 50
2
-20 0
0
FY21 FY22 FY23
FY21 FY22 FY23
Source: State Bank of Pakistan Source: Ministry of Finance

which include high operational and distribution real GDP growth fell to the third lowest level
losses and overdue capacity payments, as well since FY52 (Figure 1.1a), whereas average
as un-targeted subsidies and delayed tariff National CPI (NCPI) inflation soared to a multi-
adjustments, pushed power sector circular debt decade high (Figure 1.1b). While current
stock to a historic high level in FY23. Therefore, account deficit (CAD) narrowed considerably,
the government resorted to increasing energy inadequate foreign inflows kept external
tariffs on multiple occasions during the year account under consistent pressure, leading to a
despite a decline in global energy prices during decline in SBP’s FX reserves for the second
the second half of FY23. This, together with less consecutive year during FY23 (Figure 1.1c).
than planned fiscal consolidation and the need Meanwhile, reflecting the unsustainable fiscal
to boost revenues, necessitated re-imposition of policy stance of the past several years, a sharp
Petroleum Development Levy (PDL) on increase in interest payments, persistently large
petroleum products, which further stoked energy subsidies and lower-than-targeted tax
inflationary pressures. collection led to less than envisaged fiscal
consolidation during FY23 (Figure 1.1d).
The combined effect of these developments led
to substantial deterioration in Pakistan’s The SBP responded to the escalating
macroeconomic performance during FY23. The macroeconomic challenges by continuing

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 Economic Review
Economic Review

Number of Countries Increasing Policy Figure 1.2a Real GDP Growth Across Figure 1.2b
Rates Major Economies
no.of countries/regions* FY22 FY23
12 percent
50
40 8
30 4
20
0
10
0 -4

EU
Chile*

US
UK
S. Africa

CR**

Germany

Japan

Brazil
China
Argentina*
Pakistan

India
Sep-22
Jun-22

Aug-22

Dec-22

Jun-23
Apr-22

Apr-23
May-23
Jan-22

May-22

Jan-23
Mar-22

Oct-22
Nov-22

Mar-23
Feb-22

Jul-22

Feb-23

* 96 EMDEs and AEs, including one region, EU-27

* Jul-Mar FY23, CR** stands for Czech Republic
Sources: IMF, Haver Analytics Sources: Bloomberg, OECD and PBS
Economies Reporting Rising Inflation in Figure 1.2c Change in Emerging Markets Currencies Figure 1.2d
FY23 during FY23
no. of countries/regions* percent
70 60

60 40
50 20
40
0
30
-20
20
10 -40

0 -60
S. Africa
Egypt

Philippines
Russia

Bangladesh

Indonesia
Thailand
Malaysia
Turkey

Ukraine

Japan
India

Chile
Vietnam

Euro
China

Brazil
Pakistan

Mexico
Dec-22
Sep-22
Aug-22

Jun-23
Nov-22

Apr-23

May-23
Jan-23

Feb-23
Jul-22

Oct-22

Mar-23

* 96 EMDEs and AEs, including one region, EU-27

Source: Haver Analytics Sources: IMF, Haver Analytics

monetary policy tightening that had started pushing it to multi-decade peaks around the
since September 2021. The SBP raised the policy start of FY23. In this backdrop of worsening
rate by a cumulative 825 basis points (bps) inflationary outlooks, central banks across
during FY23, after a 675 bps increase in the emerging and advanced economies had started
previous year. This was in addition to various monetary tightening since 2021 (Figure 1.2a).
administrative measures to slow domestic The synchronous policy tightening and
demand and placate pressures on the external persistent geo-political tensions weighed down
account. Furthermore, to bolster revenue global economic activity and financial
collection, the government introduced new tax conditions during FY23 (Figure 1.2b).
measures in the second half of FY23.
The moderating demand, alongside some
Given the significant role played by domestic improvement in supply prospects, induced a
challenges, Pakistan’s macroeconomic downtrend in global commodity prices,
conditions somewhat diverged from the especially the energy prices, for the most part of
experience of other emerging economies, FY23. While the headline inflation had started
especially during the second half of FY23. The to ease globally (Figure 1.2c), central banks
fallout of Russia-Ukraine conflict had further continued to hike policy rates, albeit at a slower
added to already strong global inflation, pace in the second half of FY23, amid the

5
Economic Review

State Bank of Pakistan Annual Report 2022-2023

challenge to achieve inflation targets and mainly helped a notable increase in wheat
persistence of underlying inflationary pressures. production during Rabi season, despite lower
This was in contrast to Pakistan’s experience, usage of fertilizers. Although livestock sector
where deteriorating inflation and external suffered losses from floods, the overall impact
account outlooks necessitated large increases in remained muted. Meanwhile, various
policy rate during H2-FY23. incentives announced by SBP during the year
led to a sizeable increase in agriculture credit,
The continuation of tight monetary policy stance which also supported the overall performance of
had serious repercussions for global financial the sector.
conditions. First, the ensuing increase in
financial vulnerability, including hefty mark-to- With the backward and forward linkages with
market losses on debt securities, and the rest of the economy, the impact of the losses
concentration of deposits, triggered failure of in agriculture spilled to industry and services
two banking institutions in the United States, sectors. In addition, a range of unfavorable
and the loss of market confidence in one bank in domestic and global events including FX
Europe during FY23. Second, increasing policy constraints, weaker currency, rising cost of
rates in advanced economies contributed to production, slowing global demand and
exchange rate depreciation in a number of heightened domestic uncertainty dented
emerging economies (Figure 1.2d). Third, the economic activity during FY23. These shocks
rising cost of funding, along with weakening magnified the impact of contractionary policies
currencies reinforced debt distress in vulnerable introduced since FY22. Hence, after witnessing
economies. a consistent expansion during the preceding two
years, a broad-based decline in Large-scale
In the case of Pakistan, a variety of domestic Manufacturing (LSM) drove contraction in
shocks augmented the impact of tightened industrial activities during FY23 (Figure 1.3a).
global financial conditions and slowdown in
external demand during FY23. Particularly, Production in around one-fifth of the industries
summer flash floods inundated large swathes of covered in LSM, mainly textile, food,
the country’s land and caused enormous loss of pharmaceuticals, petroleum refining,
lives, livelihood and infrastructure. Agriculture automobiles, non-metallic minerals, tobacco,
was one of the hardest hit sectors with and chemical products, fell to the lowest level
significant damages reported to important since FY16. A number of factories announced
Kharif crops. intermittent closures of operations during the
year (Figure 1.3b). In line with the performance
The weather conditions remained unfavorable of manufacturing sector, industrial employment
for cotton crop from the beginning of the Kharif in the provinces of Sindh and Punjab also saw a
season. Amid drought like situation, the target notable decline during FY23.2 Furthermore,
for cotton sowing area was missed. This, tracking the shrinking value addition by
together with the havoc wreaked by record high commodity producing sectors, wholesale and
rainfall and flooding, especially in the provinces retail and finance and insurance services
of Sindh and Balochistan, suppressed cotton contracted, driving a notable deceleration in
production to a multi-decade low in FY23. In services sector growth in FY23.
the same vein, rice production also posted a
double-digit decline. However, a bumper wheat In addition to the slowdown in economic
crop and a decent performance by livestock activity, demand compression policies and
sector partly offset the impact of these losses administrative measures, translated into a
during FY23. Conducive weather conditions broad-based drop in imports during FY23.

2
Sources: Bureaus of Statistics of Punjab and Sindh.

6
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Economic Review

LSM Growth Shrinks Considerably Figure 1.3a Major Sectors Announcing Temporary Plant Figure 1.3b
Closures during FY23*
percent
15 12 no. of firms

10 9

6
5
3
0
0
-5

Chemicals
Textile

Food
FMCGs
Automobile

Appliances &
Construction

Machinery
-10

-15
FY12

FY18
FY13
FY14
FY15
FY16
FY17

FY19
FY20
FY21
FY22
FY23
*information before December 2022 was not available
Sources: Pakistan Stock Exchange, Securities and Exchange
Source: Pakistan Bureau of Statistics Commission of Pakistan

Softening global prices also contributed to this weakening FX liquidity conditions led to
downtrend. On the other hand, the combined downgrading of Pakistan’s credit ratings,
effect of the constrained domestic production whereas the country’s risk premium also spiked
and anemic global demand stifled both textiles significantly. The worsening outlook of the
and non-textile exports during FY23. The PKR external account discouraged adequate official
depreciation, however, provided room to inflows and private investments required to
exporters to renegotiate prices to maintain meet scheduled debt repayments. This, in
market share in some products. addition to tightened global financial conditions,
contributed to net outflows from financial
Moreover, after witnessing a consistent account during FY23, leading to a sizeable
expansion in the past six years, workers’ decline in the SBP’s liquid reserves to US$ 4.5
remittances saw a double digit decline during billion and 28.5 percent depreciation in PKR by
FY23, with inflows from all major corridors the end of FY23.
shrinking with the exception of the US. Apart
from the role played by the global economic Weaker rupee, together with substantial supply
slowdown, resumption of cross-border air travel disruptions, fueled imported inflation during
and elevated spread between interbank and FY23. In addition, upward adjustment in energy
open market rates also partly explain this prices, increase in taxation, and other levies,
decline. However, significant reduction in alongside rising domestic uncertainty, kept
goods and services imports more than offset the inflation on a strong and persistent uptrend
impact of weakening foreign exchange earnings during the most part of the year. The impact of
from exports and workers’ remittances, and these supply shocks seeped into general prices
CAD fell to an eleven-year low of 0.7 percent in and inflation expectations, pushing NCPI
terms of GDP during FY23. inflation to a multi-decade peak of 29.2 percent
during FY23, around the upper bound of SBP’s
Notwithstanding the respite provided by the revised inflation projection range of 27 – 29
narrowing CAD, unfavorable external financing percent. This was despite a slump in domestic
conditions weighed heavily on the external demand amid a range of contractionary
account position during FY23. Specifically, the measures introduced since last year.
delay in finalization of the 9th review under the
IMF’s EFF program considerably undermined Non-perishable food items were the chief source
the confidence of international investors and of inflation, followed by the Non-Food Non-
lenders. The rising domestic uncertainty and Energy (NFNE) and energy group during FY23.

7
Economic Review

State Bank of Pakistan Annual Report 2022-2023

Within food group, milk and milk products, since the start of FY22, government’s growing
wheat, edible oil and vegetable ghee, and ready- reliance on domestic sources to finance fiscal
made food were the leading contributors to deficit, weakening currency and expiry of Debt
inflation. In addition to the impact of supply Service Suspension Initiative (DSSI) last year,
shocks, longstanding structural deficiencies, contributed to a jump in interest payments
such as inadequate policy attention on during FY23.
development of food supply chain, low
Research & Development (R&D) for developing Meanwhile, spending under the Benazir Income
climate change resistant high yielding crop Support Program (BISP) also increased
varieties, and persistent imperfections in the substantially to address rising social
food commodities market, also partly explain vulnerabilities. The catastrophic floods are
the rising spree in food prices during FY23 (Box estimated to have pushed over 8 million more
3.1). people into poverty during FY23.3 This,
together with multi-decades’ high inflation had
Importantly, core inflation remained in double serious repercussions for general social
digits throughout the year, largely manifesting wellbeing. In this context, the expansion in BISP
the second-round effects of rising food and envelope mainly encompassed emergency cash
energy prices to broader prices, wages and transfers to flood affected families, and increase
inflation expectations (Figure 1.4a). Mainly in the coverage, as well as, size of per
tracking the increase in energy prices, inflation beneficiary cash grant. In addition, the
expectations rose notably in FY23, compared to government also ramped up running of civil
last year, and reinforced the increase in government expenditures and introduced
underlying inflationary pressures (Figure 1.4b). various relief measures for current and retired
employees in the shape of increments in salaries
Despite the hike in energy tariffs, energy and pensions. Furthermore, federal PSDP
subsidies widely exceeded budget estimates spending saw a decent increase in FY23, after
during FY23, reflecting sluggish pace of reforms falling consistently for the past many years.
in the energy sector. In overall terms, both
interest and non-interest current spending On the revenues side, import compression,
exceeded budget targets in FY23. Specifically, a lackluster economic activity, and continued sales
cumulative 1,500 bps hike in the policy rate tax exemption on petroleum products drove a

Inflation Expectations Remained Elevated Figure 1.4a Core Inflation Maintained an Uptrend Figure 1.4b
during FY23 in FY23
percent percent
90 25
80.2 78.7
77 20
80 76.2 75.3 75.8
74 73.5 74.4 72.9 75.1
70.7 70.9 72.1 15
70
10
60
5

50 0
May-22

May-23
Nov-21

Nov-22
Sep-21

Sep-22
Jan-22

Jan-23
Jul-21

Mar-23
Mar-22

Jul-22

May-22

May-23
Nov-21

Nov-22
Sep-21

Sep-22
Jan-22

Jan-23
Jul-21

Mar-22

Jul-22

Mar-23

Source: State Bank of Pakistan Source: Pakistan Bureau of Statistics

3 Source: Ministry of Finance (2023). Pakistan Economic Survey 2022-23. Islamabad: MoF.

8
 Economic Review
Economic Review

slowdown in the pace of FBR tax collection borrowing needs of the government, and
during FY23. This is despite some additional tax expanding currency in circulation inflated
measures announced through the Finance liquidity requirements of the money market. In
(Supplementary) Act 2023 in the second half of response, SBP considerably increased the
the fiscal year. However, PDL collection helped frequency and volume of longer-tenor OMOs
a steep increase in non-tax revenues and shored during FY23.
up overall revenue collection during the year.
Nevertheless, a high growth in spending Pakistan’s economic performance in FY23
overshadowed the increase in revenues, pushing highlights the importance of addressing
both fiscal and primary imbalances widely lingering structural impediments that pose
above target levels during FY23, contrary to a serious risks to macroeconomic stability on a
significant fiscal consolidation envisaged in the recurrent basis. Foremost among these are
budget. challenges in fiscal policy reforms. Particularly,
inadequate and slow tax policy reforms with
The large fiscal deficit underpinned a focus on one-off quick fixes have constricted the
commensurate increase in public debt burden resource envelope even for meeting current
during FY23. Although scheduled repayments expenditures. In addition, increasing use of
and inadequate external inflows led to a drop in indirect and withholding taxes as compared to
the public external debt stock in terms of US$, focusing on income tax, has significantly
weak rupee led to increase in external debt in impacted both the inflation and inflation
PKR terms. Given the dearth of external expectation. On the other hand, slow pace of
financing, the government mostly relied on reforms to address inefficiencies in PSEs has led
domestic sources for deficit financing. To to permanent drain on fiscal resources. The
benefit from the rising interest rates, market resultant chronic fiscal imbalances have
preference remained tilted towards floating-rate straitjacketed the government’s ability to
PIBs (PFLs) through most of the year. The undertake development spending required to
government’s growing reliance on floating-rate enhance the economy’s productive capacity
long-term instruments has, however, increased (Figure 1.5a). To put things into perspective,
repricing risks. interest payments consumed more than half of
the FBR tax collection on average during the
Amid continued reliance on commercial banks past five years, limiting fiscal space for
to finance the fiscal deficit, Net Domestic Assets development spending.
(NDA) of the banking system grew sharply
during FY23. However, the stress in the external The scarcity of public resources to match the
account led to a sizeable contraction in Net country’s development needs has also
Foreign Assets (NFA), partially offsetting the discouraged private investment. Hence, the
impact of increased government budgetary country is grappling with a low-investment trap,
borrowing on broad money growth during while the growth model is mainly centered on
FY23. Moreover, Public Sector Enterprises consumption (Figure 1.5b). Meanwhile, anemic
(PSEs), especially in the power sector, also investment in physical and human capital, as
stepped up borrowing from the commercial well as R&D over the last few decades has
banks, mainly to settle circular debt related prevented development of a technology-
payments. On the other hand, private sector intensive manufacturing base, which is
credit slowed considerably during FY23 due to manifested in concentration of low value-added
aggressive monetary tightening together with a goods in country’s exports (Figure 1.5c).
slump in economic activity. Specifically, the
working capital loans posted a noticeable In addition to sub-optimal state of human and
decline, whereas fixed investment also remained physical capital, multifaceted factors, which are
muted during the year. The soaring budgetary offshoots of the country’s archaic policy

9
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State Bank of Pakistan Annual Report 2022-2023

Large Imbalances in the Fiscal Account Figure 1.5a Low Investment is a Hallmark of Figure 1.5b
Pakistan's Growth Experience
Fiscal balance Revenue balance Net exports
Primary balance Total investments
percent of GDP Government expenditures
0 Private consumption
-2 15 percent

-4 10
-6
5
-8
-10 0

FY23
FY03-FY07

FY08-FY12

FY13-FY17

FY18-FY22
-5

FY01

FY03

FY05

FY07

FY09

FY11

FY13

FY15

FY17

FY19

FY21

FY23
Source: Ministry of Finance Source: Pakistan Bureau of Statistics
Commodity Concentration of Exports Figure 1.5c Consumption-led Growth Frequently Causes Figure 1.5d
(Average FY19-FY23) Balance of Payments Crisis
Current account balance
Rice Other food SBP FX reserves
Textile Chemicals
Others 20 billion US$
9%
17% 15
10% 10
5
5%
0
-5
-10
-15
-20
FY05

FY07

FY09

FY11

FY13

FY15

FY17

FY19

FY21

FY23
59%
Source: Pakistan Bureau of Statistics Source: State Bank of Pakistan

environment, have marred the country’s ability global supply shocks through pressures on FX
to generate sustained increase in exports. These reserves and exchange rate (Figure 1.5d).
include low competitiveness of exports, lack of
innovation and product development, high cost The situation requires initiation of
of doing business, lack of product and market comprehensive reforms with an aim to address
diversification, inability to meet quality various sectoral imbalances to ensure
standards, unavailability of efficient supply availability of resources for economic growth
chains, continued reliance on imported raw and development. To this end, expediting tax
materials and capital goods and a long range of policy reforms aimed at increasing
sector specific issues. At the same time, documentation, widening of tax base, improving
stagnant crop yields and lack of attention to tax administration, eliminating leakages and
development of food supply chain and creating a culture of tax compliance, assume a
imperfections in food market have considerably center stage. Similarly, restricting non-interest
increased the country’s reliance on imported current spending by ensuring speedy
food commodities. These trends underpin implementation of governance reforms in PSEs
unsustainable current account balance, which is instrumental to contain fiscal slippages and
has increased the country’s vulnerability to create fiscal space for undertaking needed

10
 Economic Review
Economic Review

public investment in human and physical growing need for informed decision-making
capital. and highlights important gaps in Pakistan’s
official statistics in terms of coverage and
Especially, energy sector reforms need to be frequency and identifies some suggestions for
prioritized to stem the buildup of circular debt NSS reforms.
by minimizing transmission and distribution
losses, aligning energy tariffs with cost, 1.2 Economic Outlook
eliminating untargeted subsidies, and speedy
implementation of reforms for reducing the After a year of turbulence, Pakistan’s economic
energy cost. Also, there is a need to lower situation has started to show some early signs of
energy intensity of the economy through improvement. The country was able to secure a
adoption of unconventional means. US$ 3.0 billion Stand-By Arrangement (SBA)
Furthermore, strengthening Public Financial from IMF, towards the end of FY23, which
Management (PFM) is required to improve helped in alleviating immediate risks to some
efficiency and transparency of fiscal spending. extent. The initial disbursement of US$ 1.2
An improvement in public investment will go a billion under the SBA in July 2023, alongside
long way in crowding in private investment in US$ 3 billion bilateral inflows, helped reverse
the key sectors. the declining trend in the SBP FX reserves.
Furthermore, according to the July 2023 World
Furthermore, manufacturing and exports sectors Economic Outlook, the prospects for global
require technological upgradation to improve economic growth in 2023 have somewhat
competitiveness and minimize reliance on improved, compared to earlier projections.
imports. In this regard, there is also a need to Similarly, the non-energy global commodity
create conducive environment to support inflow prices have also eased compared to last year.
of FDI in exportable sectors, to encourage These trends may have positive implications for
technology transfers and advancements in labor Pakistan’s economy.
skills. Similarly, agriculture sector reforms
aiming at enhancing crop yields (Box 2.1), The high frequency indicators are suggesting
development of food supply chain and bottoming out of economic activity from July
addressing market imperfections are required to 2023 (Figure 1.6). The withdrawal of guidance
brace for the rising challenge of climate change. on import prioritisation from end-June 2023,
These measures will not only help alleviate alongside gradual ease in FX position, is
import reliance but are also crucial for achieving expected to somewhat ameliorate supply chain
price stability. There is a crucial need to
expedite these reforms to achieve a high and High Frequency Demand Indicators Figure 1.6
sustainable economic growth, required to absorb Auto sales
Domestic cement sales
the new entrants in labor market, improve social POL sales
welfare and lift the general standard of living in Electricity generation
the country. percent
80
In this context, the availability of factual
40
information about macroeconomic conditions,
markets, businesses, as well as individual 0
welfare, is an important ingredient for evidence-
-40
based policy making. This report includes a
special chapter on the need to streamline the -80
Sep-22
Sep-21

May-23
Nov-21

May-22
Jan-22

Nov-22
Mar-22

Jan-23
Mar-23
Jul-21

Jul-22

Jul-23

state of Pakistan’s National Statistical System

(NSS). The chapter discusses preparedness of
Pakistan’s NSS statistical system to meet the Sources: APCMA, PAMA, OCAC and NEPRA

11
Economic Review

State Bank of Pakistan Annual Report 2022-2023

situation and lift growth in LSM as well as

Macroeconomic Targets and Projections Table 1.2
exports. for FY24
Target SBP Projections
Moreover, an expected rebound in cotton and Growth rate (percent)
rice production will support agriculture growth Real GDPa 3.5 2.0 – 3.0
in FY24. To encourage cotton production, the CPI (average)a 21.0 20.0 – 22.0
government announced a minimum price of Rs billion US$
Remittances a 30.5 25.5 – 26.5
8,500 per 40 kg for the FY24 crop. According to
Exports (fob)a 30.0 28.0 – 29.0
the preliminary information, the incentive has
Imports (fob)a 58.7 50.0 – 52.0
helped in securing increase in cotton sowing
percent of GDP
area, and is also likely to encourage farmers to Fiscal deficit b 6.5 7.0 – 8.0
scale up crop management practices despite Current a/c deficit 0.5 – 1.5
rising prices of fertilizers and pesticides. Sources: a Annual Plan 2023-24, b Federal Budget 2023-24
Reflecting the impact of these incentives, cotton
arrivals posted a strong 97.5 percent increase as
on September 1, 2023, compared to the same The SBP projects fiscal deficit in the range of 7.0
period last year. Similarly, favourable weather – 8.0 percent in FY24. Higher interest payments
conditions and a steep increase in domestic rice may continue to prevent a notable reduction in
prices incentivised growers to expand area spending during FY24. Non-interest
under rice crop and hence production in the expenditure, however, is expected to remain
ongoing year. contained on account of lower subsidies and
grants. A tepid recovery in economic activity is
The expansion in commodity producing sectors likely to shore up revenue collection during
is expected to have a knock-on impact on FY24. In FY24, the government has envisaged to
services in FY24. However, the impact of boost revenues by increasing PDL to Rs 60/litre,
various demand compression measures and announcing higher rates on top income tax
introduced in past two years may contain the brackets, builders, developers and property, and
pace of recovery in economic activity. Reflecting introducing additional GST on unregistered
these considerations, the SBP expects the real businesses.
GDP growth to fall in the range of 2 – 3 percent
in FY24 (Table 1.2). The outlook for the external account improved
at the start of FY24. The finalization of Stand-By
The lagged impact of monetary tightening, and Arrangement with the IMF was instrumental in
other contractionary measures, is expected to reviving confidence of multilateral and bilateral
keep domestic demand in check. Moreover, creditors, as well as international investors, and
prospects of improvement in supply situation led to sizeable foreign inflows during the first
on account of likely increase in production of two months of FY24. On the other hand, slightly
important crops and resumption of imports, is improved global and domestic growth prospects
expected to further moderate inflationary are expected to bolster foreign exchange
pressures in FY24. In addition to the earnings from exports of goods and services.
improvement in domestic supplies, a high base Although import volumes are likely to increase,
from last year and sluggish trend in non-energy lower commodity prices may prevent a
global commodity prices are expected to help significant expansion in imports bill during
bring down inflation in the range of 20.0 – 22.0 FY24. Workers’ remittances in FY24, however,
percent in FY24. However, unforeseen climate are expected to remain slightly lower compared
events, adverse movements in global to the last year’s level. Accounting for these
commodity prices, especially oil, and external factors, SBP projects the current account deficit
account pressures are some important upside to fall in the range of 0.5 – 1.5 percent of GDP in
risks to this outlook. FY24.

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