Record Interest Rates Cause Pakistan’s Economic Growth to Slow

Despite a record high interest rate affecting businesses and reducing consumer demand, Pakistan’s economic growth weakened in the fiscal second quarter. According to data from the Pakistan Bureau of Statistics, gross domestic product expanded by 1% in the October-December period 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%.

Despite efforts to avoid a sovereign default last year, Pakistan’s economy has remained fragile. 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. While the IMF has lowered its GDP forecast for the current fiscal year to 2% from 2.5%, 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. Agriculture saw growth of 5.02% from a year ago, while industry contracted by 0.84%. The services sector grew by a minimal 0.01%. Despite these challenges, there are signs that Pakistan’s economy is slowly recovering after years of stagnation and instability under former Prime Minister Imran Khan’s leadership.

By Sophia Gonzalez

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