Pakistan Economic Outlook
The economy has likely weakened in FY 2023 (July 2022–June 2023) to date. Exports fell 12% and remittances 13% in July–April, and the Purchasing Managers’ Index has been bogged down in contractionary territory. Floods between June and October caused an estimated USD 40 billion in damage and, by destroying crops, have inflamed inflation and pushed up spending on imports. In turn, this has drained international reserves, forcing the government to seek a deal with the IMF. This moved a step closer in early May, when the IMF said that Pakistan had agreed to scrap a proposed fuel subsidy. Scrapping the proposal threatens to ignite an explosive political situation, however: The main political threat to the government, the popular opposition leader Imran Khan, was briefly arrested in mid-May on corruption charges.
Inflation rose to a 50-year high of 36.4% in April (March: 35.4%). Inflation should ease this calendar year on cooling domestic demand, but the recent removal of currency controls and fuel subsidies will keep it far above its 10-year average of 8.0%. Key factors to watch are the weather, the currency and commodity prices.