ISLAMABAD - The Asian Development Bank (ADB) has projected that Pakistan’s economy is expected to grow at 4 per cent during current fiscal year as business activity gradually resumes in the second year of the coronavirus disease (COVID-19) pandemic.
Pakistan’s economic growth rebounded to 3.9 percent in fiscal year (FY) 2021 (ending June 30, 2021) and is expected to reach 4 per cent in FY2022. “This growth forecast assumes recovery in private investment as consumer confidence and business activity improves amid the ongoing vaccination rollout and various economic stimulus measures announced in the budget for FY2022,” said the Asian Development Outlook (ADO) 2021 Update, ADB’s annual flagship economic publication. 
It also assumes the resumption of structural reform later in the year in an ongoing program under the International Monetary Fund (IMF) Extended Fund Facility. The economic outlook is clouded, however, by high uncertainty because it is closely tied to the course of the pandemic in Pakistan and globally. On the supply side, the outlook for agriculture is encouraging in view of the government’s ambitious Agriculture Transformation Plan. The plan aims to achieve food security for a growing population by expanding land under cultivation, revamping extension services, boosting water-use efficiency, developing postharvest storage and food processing plants, augmenting bank credit, and introducing the Kissan Card as a digital wallet for the direct and swift transfer of subsidies for seed, pesticides, and fertilizer. 
Growth in industry is forecast to improve in FY2022, driven by fiscal incentives announced in the FY2022 budget, a substantial rise in budgeted development spending, and strong private consumption underpinned by adequate agricultural harvests, strong remittance inflow, and a pickup in earnings as social restrictions are reduced and most economic activity resumes. Also expected to buttress industry are the steady normalization of global merchandise trade, improved market sentiment, and stronger business and consumer confidence expected from the continuing rollout of COVID-19 vaccines and an accommodative monetary policy. 
Enhanced growth in agriculture and industry and an expected improvement in domestic demand are projected to boost growth in services, strengthening their contribution to growth in FY2022. On this outlook, this Update maintains the ADO 2021 projection for GDP growth at 4.0% in 2022. Inflation is projected to slow to 7.5% in FY2022, unchanged from the forecast in ADO 2021, as food prices moderate with supply chain improvement and production increases facilitated by the government’s Agriculture Transformation Plan. Price rises for other goods are expected to moderate as well thanks to tax relief in the FY2022 budget. Inflationary pressures will likely come from ongoing economic recovery and rising global oil prices but should be tempered by expenditure reform and the government’s commitment not to borrow directly from the central bank. Risk of inflation higher than forecast derives from any unusual increase in oil prices or from potential currency depreciation in the wake of any early winding down of the ongoing IMF program.
The fiscal deficit is forecast to narrow to the equivalent of 6.9% of GDP in FY2022, which is still higher than the target set earlier under a medium-term fiscal consolidation program supported by the IMF. Growth in revenue is projected to accelerate with the rapid pickup in domestic economic activity and higher imports. Further bolstering revenue growth are the introduction of new tax measures under the Finance Act, 2021; a renewed focus on streamlining tax exemptions; and additional policy and administrative measures to broaden the tax base. Expenditure is also projected to rise in FY2022, as the government has budgeted substantial increases in subsidies and in social and development spending to protect the vulnerable and fortify growth and economic recovery.
Pakistan’s public debt outlook is sustainable in the medium term. With primary and fiscal deficits, high borrowing costs, and currency depreciation, public external debt reached $95.2 billion in FY2021. However, the government has been implementing a medium-term debt strategy for FY2020–FY2023.
The maturity structure of public debt has improved by reprofiling public debt into longer-term instruments. With strong economic growth prospects for FY2022 and beyond, public debt remains on a downward path over the medium term. As domestic demand picks up and international oil prices rise, the current account deficit is seen widening to the equivalent of 1.5% of GDP in FY2022, which is a smaller deficit than forecast in ADO 2021 in line with the FY2021 deficit being smaller than projected. Export growth is expected to accelerate in FY2022, supported by a projected upturn in economic activity in Pakistan’s major trade partners. Exports will further benefit from continued initiatives to reduce the cost of doing business and especially from the government’s newly introduced export facilitation scheme, which allows the duty- and tax-free acquisition of inputs: intermediate goods, plant, and machinery. Imports are expected to rise in FY2022 in response to domestic economic recovery, higher international oil prices, and rationalization of custom and regulatory duties in the FY2022 budget. Remittances are likely to remain elevated, supported by the Roshan Digital Accounts initiative, and will continue to narrow the current account deficit.
“Pakistan’s economy is on the path to recovery, supported by promising growth in the industry and services sectors,” said ADB Country Director for Pakistan Yong Ye. “The continued rollout of the COVID-19 vaccination program, structural reforms, and the expansion of social protection programs are all key to ensuring inclusive and sustainable growth. Fiscal incentives and policies to boost export competitiveness, bolster the performance of the manufacturing sector, and augment private investment will continue to play an instrumental role in strengthening the economic outlook.”