In the wake of the destruction caused by flash floods, the State Bank of Pakistan’s Monetary Policy Committee (MPC) predicted on Monday that the country’s economic growth will fall to 2% in FY23.
According to information now available, the MPC anticipated GDP growth might decline to about 2% in FY23, compared to the earlier prediction of 3–4% before the floods. According to a statement from the MPC, "The MPC addressed the post-flood macroeconomic outlook.”
The SBP maintains the status quo in terms of monetary policy and leaves the benchmark interest rate at 15%.
The MPC’s prediction comes after Pakistan, a country of 220 million people in South Asia, experienced record monsoon rains in the south and southwest and glacial melt in the north, which led to flooding that affected close to 33 million people and destroyed homes, crops, bridges, roads, and livestock, causing damage estimated at $40 billion.
Additionally, the World Bank’s prior forecast that Pakistan’s GDP growth would decelerate from 6% in the fiscal year 2022 to roughly 2% in the fiscal year 2023 and that inflation would increase to 23% from 12.2% is consistent with the central bank’s prediction.
Preliminary projections imply that, as a direct result of the floods, Pakistan’s national poverty rate might rise by 2.5 to 4 percentage points, driving between 5.8 and 10 million people into poverty, according to the World Bank’s "October 2022 Pakistan Development Update: Inflation and the Poor.”
The MPC also acknowledged in its statement that rising food costs might push average headline inflation in FY23 somewhat over the pre-flood prediction of 18–20%.
Pakistan’s finance ministry cautions that the country’s economy is unpredictable and likely to continue to grow below target.
However, the impact on the current account deficit is anticipated to be minimal, with pressures from increased imports of food and cotton and reduced exports of textiles being mainly countered by weaker local demand and lower global commodity prices.
It went on to say that, as a consequence, "any worsening in the current account deficit is projected to be minimized, nevertheless, leaving it in the region of the previously forecast 3% of GDP.”
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