ADB upgrades Pakistan's growth prospects to 3% for FY25

ISLAMABAD: Amid the federal government's arduous efforts to improve the economy, the Asian Development Bank (ADB) has revised Pakistan's growth forecast to 3% during the fiscal year 2024-25 as from the previously projected 2.8% in September 2024.

The report says that greater macroeconomic stability, following the approval of the new International Monetary Fund (IMF) programme under the Extended Fund Facility, will support economic recovery.

Meanwhile, it projects industrial output growth to accelerate with the suspension of import management measures, higher investor confidence, and easier access to foreign exchange.

It further says industrial output growth is projected to accelerate with the suspension of import management measures, higher investor confidence, and easier access to foreign exchange.

A more accommodating monetary policy because of faster-than-expected easing of inflationary pressures should further support economic activity through rebounding private investment.

However, growth in agriculture is expected to weaken due to the heavy monsoon downpours during July–September 2024 and flood-like conditions in parts of the country.

Wheat and cotton, two of the country's five major crops, are projected to perform poorly in FY25.

The Asian Development Outlook (ADO) for December 2024 also revised growth for FY2024, upwards to 2.5%, in line with the updated official estimate.

In South Asia, the growth forecasts have been revised downward to 5.9% for 2024 and 6.3% for 2025. The lower forecast for 2024 is mainly due to India's lower-than-expected second-quarter growth, driven by dampened manufacturing sector performance and lagging government spending.

While growth forecasts for Pakistan and Sri Lanka have been upgraded due to their recovery from the macroeconomic challenges of 2022– 2023, downward revisions for Bangladesh and Maldives have further weighed on the 2024 outlook.

The latter two economies' growth forecasts are also revised downward for 2025 due to the lingering effects of the political unrest of July-August 2024 in Bangladesh and fiscal consolidation measures in Maldives.

Some weakening of growth is also expected for 2025 in Nepal relative to earlier forecasts.

The growth forecast, adds the report, for developing Asia is trimmed to 4.9% for 2024 and 4.8% for 2025. Most adjustments to 2024 growth projections for individual economies and sub-regions are based on recent data releases.

The downward revisions to East Asia and South Asia offset the stronger growth in the Caucasus, Central Asia and Southeast Asia, shaving 0.1% from growth in the region.

For 2025, slower growth is expected in South Asia due to weaker domestic demand prospects. Meanwhile, developing Asia's growth remains solid, but the new United States administration promises consequential changes.

Domestic demand remains strong in much of the region, and exports continue to support growth, although momentum has moderated.

The incoming Trump administration promises significant policy changes with implications for the region, as discussed in this report's Special Topic.

Most of the impact will be felt beyond this ADO’s forecast horizon, however, while growth projections for 2024–2025 remain largely unchanged from September, downside risks persist and include faster and larger US policy shifts than currently envisioned, a worsening of geopolitical tensions, and an even weaker PRC property market.