Qudsia Bano

Despite recent signs of economic stabilisation, experts have cautioned that Pakistan’s medium-term outlook remains vulnerable due to structural weaknesses, particularly low productivity growth and global economic uncertainty. The warnings follow the release of the State Bank of Pakistan’s Half-Year Report for FY25, highlighting notable macroeconomic improvements and underlying risks.

The SBP reported significant progress in key economic indicators, including a sharp drop in inflation, a surplus in the current account, and a fiscal deficit kept in check — the lowest since FY05. Average inflation for FY25 is projected to be between 5.5 and 7.5%, while GDP growth is forecast in the range of 2.5 to 3.5%. These gains are attributed to a tight monetary policy, fiscal consolidation, and favourable global commodity prices. However, economists and policy analysts say these improvements mask deeper, long-term vulnerabilities.

“While disinflation and fiscal improvement are welcome, these are cyclical gains,” said Dr Shahid Mehmood, an economic analyst and former research fellow at the Pakistan Institute of Development Economics. “Without addressing the chronic issues of low productivity and weak export competitiveness, Pakistan risks falling back into another boom-bust cycle.” He believes the productivity issue is compounded by ongoing uncertainty in the agricultural sector, particularly in the Kharif crops, and the decline in industrial output during the first quarter of FY25.

Mehmood added, “The challenges in agriculture and industry are not just cyclical but reflect deeper structural issues, such as outdated farming techniques and insufficient industrial modernisation.” Additionally, global economic factors, such as trade disruptions and commodity price volatility, were identified as potential risks to Pakistan’s growth prospects. The SBP’s medium-term outlook reflects this uncertainty, projecting GDP growth for FY25 to remain subdued at 2.5 to 3.5%.

Dr Samina Ahmed, a senior economist at the Sustainable Development Policy Institute, emphasised the need for structural reforms to address these risks. “The government’s priority should be to enhance productivity in both agriculture and industry, while also focusing on building human capital through education and skill development,” she said. “Investing in these areas is crucial for improving Pakistan’s competitiveness on the global stage.”

Despite these challenges, experts acknowledged that the recent improvements in inflation control, current account balance, and foreign exchange reserves were positive signs. These factors, coupled with an ongoing increase in workers’ remittances and exports, have provided some cushion against the country’s external vulnerabilities.

However, they warn that without tackling the productivity crisis, Pakistan may struggle to maintain long-term growth and avoid economic instability in the face of changing global conditions. Pakistan’s medium-term economic trajectory will depend largely on how effectively it addresses these structural weaknesses, particularly by improving productivity across key sectors. If left unaddressed, the country may face recurring challenges in the coming years, despite short-term economic gains.

Credit: INP-WealthPk