Pakistan’s Economy to Grow at 3.4% in FY25: UN Economic Survey

January 11, 2025 Mahi Bukhari

ISLAMABAD: The United Nations’ latest economic survey highlights signs of recovery in Pakistan’s economy following a downturn in the fiscal year 2022-23. The survey projects a 3.4% GDP growth rate in FY25, indicating a modest expansion of economic activity.

This optimistic outlook is detailed in the “World Economic Situation and Prospects 2025” report, issued by the United Nations Department of Economic and Social Affairs (DESA). The report also underscores the importance of structural reforms under the International Monetary Fund’s (IMF) Extended Fund Facility (EFF) program, which is pivotal to Pakistan’s economic resurgence.

IMF’s Role in Strengthening Pakistan’s Economy

The IMF’s Extended Fund Facility (EFF), worth $7 billion over 37 months, builds on the progress of the 2023 EFF. The program aims to:

Address structural economic challenges.
Restore economic stability.
Foster sustainable growth.

Key Priorities Under the IMF Program

Rebuilding Policy Credibility: The government must focus on fiscal discipline to regain investor confidence.
Advancing Reforms: Enhancing competitiveness through trade and market reforms.
Reforming State-Owned Enterprises (SOEs): Streamlining operations to reduce inefficiencies and losses.
Building Climate Resilience: Mitigating the impact of climate-related shocks on the economy.

The UN survey acknowledges the efforts made by Pakistan to address structural economic challenges, emphasizing the importance of the IMF’s support in maintaining fiscal discipline and implementing reforms.

Regional Economic Outlook for South Asia

The UN report highlights a robust economic outlook for South Asia, projecting regional GDP growth of 5.9% in 2024, 5.7% in 2025, and 6.0% in 2026. This growth is driven by strong economic performance in India and recovery in countries like Pakistan, Bhutan, Nepal, and Sri Lanka.

Risks to Regional Growth

Despite positive projections, the region faces significant risks:

Geopolitical Tensions: Rising geopolitical conflicts may disrupt trade and investments.
Deceleration in External Demand: Slowing global demand could impact exports.
Debt Challenges: High debt burdens remain a concern for countries like Pakistan and Sri Lanka.
Social Unrest: Economic disparities and inflation could fuel social instability.
Climate Hazards: South Asia is highly vulnerable to extreme weather events, such as heatwaves, droughts, and floods.

Inflation Trends Across South Asia

Inflation in South Asia is projected to decline from 9.9% in 2024 to 8.3% in 2025 and further to 7.2% in 2026. However, inflationary pressures vary across countries:

Bangladesh: Inflation remains elevated.
Pakistan and Sri Lanka: Inflation is on a downward trajectory, supported by reduced policy rates.
Iran: Inflation is expected to remain high at 28.4%.

Monetary Policy Adjustments

Easing inflation has enabled central banks in the region to adopt accommodative policies:

The State Bank of Pakistan has reduced its key policy rates to support economic recovery.
Sri Lanka’s central bank has also lowered rates, aiming to boost economic activity.

Impact of Climate-Related Shocks on South Asia

The year 2024 witnessed severe climate-related disruptions across South Asia. Countries including Pakistan, India, Bangladesh, and Sri Lanka experienced:

Heatwaves and Droughts: Reduced agricultural yields and elevated food prices.
Irregular Rainfall Patterns: Disrupted farming cycles, impacting food security.
Extreme Weather Events: Poor rural households faced significant income losses, exacerbating income inequality.

Economic Implications of Climate Shocks

Reduced Crop Yields: Resulting in higher food prices and inflationary pressures.
Widening Income Inequality: Low-income households are disproportionately affected.
Increased Economic Vulnerability: Recovery from climate shocks adds to fiscal pressures.

Pakistan’s Debt and Interest Payments

High interest payments remain a critical challenge for Pakistan. Since the COVID-19 pandemic, countries with pre-existing debt burdens, including Pakistan, Maldives, and Sri Lanka, have witnessed a sharp rise in debt servicing costs.

This trend underscores the need for sustainable debt management and fiscal consolidation to avoid economic instability.

FAQs About Pakistan’s Economic Growth in FY25

1. What is the GDP growth projection for Pakistan in FY25?

The United Nations projects Pakistan’s GDP to grow by 3.4% in FY25, reflecting a modest economic recovery.

2. How is the IMF helping Pakistan’s economy?

The IMF’s Extended Fund Facility supports Pakistan through structural reforms, fiscal discipline, and economic stabilization.

3. What are the main risks to Pakistan’s economic outlook?

Key risks include geopolitical tensions, high debt burdens, inflationary pressures, and climate-related shocks.

4. How is inflation expected to change in Pakistan?

Inflation in Pakistan is projected to decline gradually due to easing monetary policies and lower global food prices.

5. How are climate shocks affecting Pakistan’s economy?

Climate shocks have disrupted agriculture, elevated food prices, and widened income inequality, posing significant challenges to economic stability.

Conclusion

The 3.4% GDP growth projection for FY25 reflects Pakistan’s progress toward economic recovery under the IMF program. While challenges remain, including climate shocks and debt pressures, the government’s focus on structural reforms and fiscal discipline offers a pathway to sustainable growth.

As part of South Asia’s broader economic recovery, Pakistan has an opportunity to strengthen its economy, improve policy credibility, and build resilience against future risks.

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