Pakistan’s Economic Growth Flatlines as High Interest Rates Dampen Business and Consumer Demand

Despite a slight increase in gross domestic product growth in the October-December period, Pakistan’s economic growth weakened in the fiscal second quarter due to high interest rates affecting businesses and reducing consumer demand. According to data from the Pakistan Bureau of Statistics, GDP expanded by 1% compared to a year ago, lower than the median estimate of 1.8% in a Bloomberg survey. The National Account Committee also revised upward economic growth for the previous quarter to 2.5% from 2.13%.

The agriculture sector saw growth of 5.02%, while industry contracted by 0.84%. The services sector grew by a minimal 0.01%. Despite efforts to avoid a sovereign default last year, the economy has remained fragile, and Prime Minister Shehbaz Sharif is seeking a new loan from the International Monetary Fund (IMF) to support the economy and bolster Pakistan’s foreign exchange reserves.

The IMF has lowered its GDP forecast for the current fiscal year to 2% from 2.5% due to weaker domestic demand, while the State Bank of Pakistan is more optimistic, citing better farming and industrial output supporting the economy. Last fiscal year, Pakistan experienced a rare contraction of 0.17%. The nation continues to heavily rely on IMF aid, with $24 billion in external financing needs in the fiscal year starting July, about three times its foreign exchange reserves.