ISLAMABAD: Pakistan will witness the third consecutive year of stagflation with no major improvement in people’s lives as the government approved a 3.6% economic growth target and an overambitious 12% inflation target for the next fiscal year. The targets, approved by the Annual Plan Coordination Committee (APCC), are contingent on political stability, currency market steadiness, and a new bailout package. The APCC noted that external debt repayments would pressure the rupee and foreign exchange reserves.
The central bank representative highlighted that achieving the 12% inflation target depends on the budget, warning that additional taxation could push inflation higher. Under the SBP Act, the federal government sets the inflation target, but the central bank missed the 21% target for this fiscal year.
Uncertainty looms over the National Economic Council (NEC) meeting, crucial for endorsing these targets, as the government has yet to form the body. Prime Minister Shehbaz Sharif is expected to chair the NEC meeting, but its timing is unclear.
The 3.6% growth and 12% inflation targets suggest another year of low growth, high poverty, and unemployment. Provisional results showed this year’s GDP growth at 2.4%, driven mainly by the agriculture sector, against a target of 3.5%. External debt repayments are expected to pressure forex reserves and the exchange rate, despite positive outlooks for remittances, exports, and external inflows.
The exchange rate saw a 13.6% depreciation to Rs284.1 during July-April this fiscal year, compared to Rs245.4 last year. Former finance minister Dr. Hafiz A Pasha predicted average inflation next fiscal year could be 19%-20% due to taxation and exchange rate depreciation.
The 3.6% GDP growth target relies on internal and external factors, including investor confidence, political stability, macroeconomic stabilization under a new IMF program, economic reforms, input availability, supportive policies, external inflows, and favorable agricultural weather. The IMF’s recent stance against significant policy rate cuts adds to the uncertainty. The new annual plan emphasizes the need for exchange rate stability, external account improvement, macroeconomic stabilization, and potential decreases in global oil and commodity prices for economic growth prospects.
