Economy stabilises, projected growth of 3.61 percent in fiscal 2024: economists

LAHORE: Economists believe that Pakistan's economy has stabilised and is likely to resume modest growth in fiscal year 2023-24.

The Pakistani economy is projected to start an upward growth trajectory in the next fiscal year, with a projected economic growth of 3.61 percent in fiscal year 2024. These observations were made by eminent economists addressing the two-day sixteenth international conference on “Managing Pakistan’s Economy,” organised by the Lahore School of Economics on Tuesday.

The goal of the conference is not only to discuss the economic issues faced by Pakistan but also to lay the foundations for long-term sustainable economic growth. The Rector of the LSE, Dr. Shahid Chaudhry, said that after the impact of Covid-19 and the Ukraine war, the Pakistani economy was now stabilizing, and after almost no growth in 2022-23, it was likely to resume modest growth in 2023-24.

Endorsing his viewpoint, the Professor of Economics at the Lahore School, Dr. Moazam Mahmood, projected that the Pakistani economy would start an upward growth trajectory in the next fiscal year.

He mentioned that firstly, the current account seems to be recovering from its deep deficits, albeit with import controls that need to be better targeted. Secondly, for FY 2024, Pakistan should recover from the supply shocks to agriculture, and industry should turn into more robust growth.

Thirdly, the current stringent monetary and fiscal policies adopted over FY 2023, well into FY 2024 and beyond, into GOP’s Medium-Term Economic Framework, should assist in bringing down inflation and stabilizing the economy. Based on this, Dr. Moazam’s model projects GDP growth over FY 2024 to be 3.61 percent.

The Pro Rector, Dean, and Professor of Economics at the LSE, Dr. Azam Chaudhry, estimated capital flight from Pakistan using the data from the balance of payments and the level of trade misinvoicing in Pakistan.

In the last 10 years, capital flight has reached significant levels over the last few years, reaching almost 5 billion dollars. He also showed that capital flight is extremely sensitive to economic conditions, which means that sustained economic growth will tempt capital to return.

If the Pakistani economy can rebound quickly to a 4-5 percent growth rate, it is estimated that at least $5.5-6 billion of capital can flow back to Pakistan each year.

The Professor and Director of the Graduate Institute of Development Studies at the LSE, Dr. Rashid Amjad, analyzed the post-2019 shifts towards a market-driven exchange rate and found that while the exchange rate may have been overvalued in the past, this has been reversed recently, which should make exports more competitive.

He advised managing Pakistan’s market-determined exchange rate regime through building up and maintaining adequate reserves.

Dr. Naved Hamid, Ali Chaudhry, and Murtaza Syed discussed how the monetary policy impact could be reduced by the current economic crises and lessons, which can be drawn for monetary policy in the future.

They proposed improving the coverage and frequency of domestic demand indicators, especially quarterly GDP, maintaining a healthy degree of caution around fiscal projections, especially during times of political stress and around elections, being conservative about external prospects, current account, Forex reserves, and foreign inflows and their impact on the exchange rate and imported inflation.

Lastly, they cautioned the supply shocks that can quickly morph into an inflationary spiral through expectations and asked for paying attention to the whole distribution of expectations measures, especially Pakistan has a history of ‘sticky’ core inflation.

Former chairman Federal Board of Revenue Shabbar Zaidi said Pakistan needs structural and constitutional reforms to come out from economic crisis. “We have to change our taxation system as well as we have to bring changes in NFC award.”