Pakistan’s economy has seen a sharp decline in growth, recording just 0.92% in the first quarter of the current fiscal year. This is a stark contrast to the 3.3% growth seen in the previous quarter (April-June). The slowdown is mainly due to poor performance in agriculture and industrial sectors, which are facing significant challenges. People are struggling with the high cost of doing business, and sudden shifts in economic policies have added to the difficulties.
The National Accounts Committee (NAC), which monitors the country’s economic performance, met on December 31, 2024, to approve the provisional GDP growth rate for the July-September quarter. The figure of 0.92% reflects the country’s difficulty in generating jobs, particularly in light of the growing population. This growth rate is also far lower than the target of 3.6% set for the 2024-2025 fiscal year by the government.
This slowdown is especially concerning since the GDP growth is not keeping pace with Pakistan’s population growth rate. This has led to fewer job opportunities, especially for the country’s large youth population. Unfortunately, the government does not have much fiscal space to boost the economy, as taking on more debt would only worsen the fiscal and external crises. The government raised taxes by Rs1.4 trillion in its budget and increased electricity prices by up to 51% in July, which have negatively impacted industrial growth. However, there are hopes that lowering interest rates could give the industrial sector a much-needed boost.
In the agricultural sector, things are not looking any better. The sector grew by just 1.1% in the first quarter, a significant slowdown from the 8.1% growth in the same period last year. One of the main reasons behind this is the sudden and unplanned implementation of an IMF condition that phased out support prices for agriculture. The IMF had advised phasing out this mechanism by 2026, but the government took early action, which hurt the sector. As a result, the production of key crops like cotton, maize, rice, and sugarcane dropped significantly. Cotton production, for instance, declined by 29.6%, while sugarcane production fell by 2.2%.
The industrial sector, a major contributor to employment and taxation, has also been struggling. It contracted by over 1% in the first quarter, although this was an improvement from the 4.43% contraction in the same period last year. The mining and quarrying industry saw a 6.5% decline due to low production of coal, gas, and crude oil. Large-scale manufacturing also showed a negative growth of 0.82%. The construction sector faced a severe downturn, shrinking by 14.9%, with cement production dropping by 16.1%.
On a brighter note, the services sector posted a growth of 1.43%, which was the highest among all sectors, though still lower than the 2.2% growth last year. Wholesale and retail trade grew by just 0.5%, largely due to challenges in agriculture and imports. The transport and storage sector saw a slight decline, while the information and communication industry thrived, recording a growth of 5.1% thanks to better performance from mobile companies. The finance and insurance industry also saw a growth of 1.1%.
Looking back at the previous fiscal year, the government has slightly adjusted the overall economic growth figure to 2.52%. However, sector-specific adjustments were more significant. For instance, the agriculture sector’s growth was revised down to 6.2%, from 6.4%, and the industrial contraction was revised from -1.1% to -1.7%. On a positive note, the services sector’s growth has been slightly revised upwards to 2.4% from 2.2%.
Pakistan’s economic future hinges on several factors, including the government’s ability to implement policies that can stimulate growth without exacerbating fiscal issues. The challenges are clear, but with strategic interventions, there may still be hope for a recovery in the coming months.
See Also: Pakistan GDP Growth Slows to 0.92% in Q1 FY 2024-25!
