Economy to grow by 2-2.5pc in FY24, says Shamshad

KARACHI: Pakistan’s economy is expected to rebound in the fiscal year 2024, growing by 2-2.5 percent due to the significant improvement in the country’s macroeconomic indicators, especially the better performance of the agriculture sector, Caretaker Finance Minister Dr Shamshad Akhtar said on Saturday.

The country’s foreign exchange reserves have reached a high of $9.1 billion, thanks to the International Monetary Fund’s (IMF) loan tranche and multilateral flows, according to Akhtar.

It’s not just the finance minister who is upbeat about the nation’s GDP rebounding; international financial institutions also perceive a modest expansion in the economy in comparison to the last fiscal year which ended on June 30, 2023, when the economy shrank by 0.2 percent.

The $3 billion short-term bailout package from the International Monetary Fund, easing of supply bottlenecks, expectation of rate cuts and political stability post-elections all contribute to the optimism for an economic recovery.

“Despite challenges, there has been significant progress in macroeconomic, exchange rate and financial stability,” Akhtar said in a video link at the IPO Summit 2024.

“Growth has rebounded to a positive trajectory in the range of 2 to 2.5 percent with agriculture expected to grow by 5.6 percent and industry by 2.5 percent this fiscal year,” she added.

The State Bank of Pakistan expects the economy to expand in the range of 2 to 3 percent in FY24.

However, the IMF revised down the real GDP growth to 2 percent in FY24 from its earlier forecast of 2.5 percent in its country report on Pakistan, which was made public following the first review under the stand-by arrangement. This was because of tighter fiscal and monetary policy and weakening domestic demand. Positive base effects from flood recovery are anticipated, but they are being tempered by the external sector’s challenges, it stated.

“With the realisation of quick disbursement of multilateral flows from the World Bank, Asian Development Bank and AIIB [Asian Infrastructure Investment Bank], which have also been enhanced by the International Monetary Fund release of the second tranche, the foreign exchange reserves have reached $9.1 billion from the lows of $4 billion at the beginning of our term,” Akhtar said.

Pakistan’s gross reserves as of right now are higher than the IMF’s $9.1 billion full-year projection for FY24. Nonetheless, a clearer picture of the reserves’ position will be provided by the FX statistics for the week that concluded on January 19.

She expressed optimism over revenue from tax collection, stating that the Federal Board of Revenue is expected to collect approximately Rs10 trillion in taxes in FY24, which is more than the projected figure of Rs9.4 trillion. Restraints and rationalisation of federal spending will generate a primary surplus, and a substantial deficit in the current account itself has turned into a surplus thus far, according to Akhtar. “Of course, as we exit, I hope the last quarter does not create complications for the current account,” she said. “Unless and until we have two of these accounts manageable, the fiscal and current accounts, we will not be able to reduce the interest rates,” she added. “Although not in my hands, it’s with the State Bank, but my colleagues in the State Bank are also now conscious of the fact that we will have to move to lower the interest rates subject to inflation coming down.” According to her, record-high interest rates are unfavourable for the capital markets. According to her, the KSE-100 index saw a roughly 50 percent return in both USD and PKR terms in the second half of 2023, thanks to the difficult but necessary reforms implemented by the caretaker setup. She said that the PSX saw just one IPO in 2023 and that it was disappointing since the market was only able to raise Rs435 million in investment.

Mian Muhammad Mansha, Chairman of MCB Bank Limited, said to foster a favourable environment, it is imperative to reduce the number of ministries to halt financial leakages, lower energy prices, pursue privatisation and lay off surplus staff in state-owned enterprises. He said decisions in business disputes are made by courts and bureaucracy following debates and investigations, but they are not made public for years. This degrades the atmosphere for doing business. He said that once these problems were fixed, investors would be encouraged to open offices in Pakistan and hold initial public offerings at PSX. Chairman of Arif Habib Limited, Arif Habib, stated that although the current climate is not favourable for IPOs and fresh investment raising, the process is still difficult. High energy prices, high interest rates, high tax rates and high inflation readings all need to be rationalised, he said. Aqeel Karim Dhedhi, Chairman of AKD Group, stated that PSX cannot draw IPOs if minority shareholder rights are not upheld. “The market value of PSX might reach $300 billion from $3 billion if regulations safeguarding minority shareholders are put in place,” he said.