UN projects Pakistan’s economy to grow by 2% in 2024
IMF Program Expected to Stabilize Economy and Boost Foreign Reserves, Says Report
Pakistan, facing significant economic challenges, is projected to experience "modest economic growth" with its GDP expected to expand by 2% in 2024, according to a United Nations report.
The mid-year World Economic Situation and Prospects report notes that Pakistan has entered a $3 billion Stand-by Arrangement with the International Monetary Fund (IMF). This program is anticipated to help stabilize the economy, increase foreign exchange reserves, and facilitate fiscal adjustments while protecting crucial social spending.
However, the report also highlights that tight financial conditions and fiscal and external imbalances will continue to constrain growth in South Asia in the near term. Additionally, geopolitical tensions, including the ongoing war in Ukraine and the conflict in Western Asia, pose risks of sudden oil price spikes for net-oil-importing countries in the region, such as India.
During the second half of 2023, most South Asian countries faced currency depreciation pressures. From July to October, the US dollar rose by about 6.5% against a basket of global currencies, reaching its highest level in 11 months, bolstered by the strong performance of the American economy and high interest rates.
As a result, the Sri Lankan rupee depreciated by 3.2% against the US dollar, while the Indian rupee fell by 1.2%. After raising policy rates in 2022, most central banks in South Asia paused monetary tightening or began lowering key policy rates in 2023, with some exceptions. The State Bank of Pakistan, for instance, has kept its policy rate at a record high of 22% since June 2023.
The report also highlights the increase in acute food insecurity in Bangladesh and Pakistan in 2023, while it decreased in Sri Lanka. Afghanistan remains the most affected country in the region, with around 46% of the population facing acute food insecurity.
Climate shocks continue to threaten development gains, particularly for the world's Least Developed Countries (LDCs) and small island developing states (SIDS). Droughts intensified in July and August 2023, affecting most of India, Nepal, and Bangladesh, while Pakistan experienced above-average rainfall.
Globally, the economy is forecasted to grow by 2.7% in 2024 (an increase of 0.3 percentage points from the January forecast) and 2.8% in 2025 (an increase of 0.1 percentage points). These adjustments are attributed to better-than-expected performances in some large developed and emerging economies, notably Brazil, India, Russia, and the United States. Inflation has also decreased from the 2023 peak.
Shantanu Mukherjee of the UN Department of Economic and Social Affairs (DESA) highlighted that tight labor markets in developed countries are resulting in wage increases and drawing more people into the labor force.
Despite a cautiously optimistic outlook, challenges such as high interest rates, debt sustainability risks, and ongoing geopolitical tensions persist. Although prospects for SIDS have been revised upwards to about 3.3% annually, this remains below pre-pandemic averages, indicating that "lost ground is still not being made up."
In Africa and LDCs, growth prospects are revised downward to about 3.3% in 2024, raising concerns given that Africa is home to approximately 430 million people living in extreme poverty and nearly 40% of the global undernourished population. Moreover, over a quarter of public revenues in Africa in 2024 are expected to go towards interest payments, about 10 percentage points higher than the pre-pandemic average.
While the debt situation in developing countries is not as severe on average, concerns remain over falling investment growth. These issues are compounded by risks such as inflation, which both reflects underlying fragility and poses a significant concern.
The report also includes a special section on critical minerals like lithium, nickel, cobalt, and copper, which are essential for the transition to clean energy. Countries with these resources need smart policies and effective implementation to avoid the "resource curse" associated with environmental damage, stunted development, poverty, and conflict.
"It is imperative for developing countries to design and implement well-targeted and timely economic, social, and environmental policies to optimize the benefits of their critical mineral endowments and avoid another cycle of the resource curse," the report concludes.