Record Interest Rates Slowing Economic Growth in Pakistan

Pakistan’s economic growth has slowed down in the fiscal second quarter due to record high interest rates impacting businesses and reducing consumer demand. Gross domestic product (GDP) only expanded by 1% in the October-December period compared to the same time last year, falling short of the median estimate of 1.8% in a Bloomberg survey. The National Account Committee has also revised upward economic growth for the previous quarter to 2.5% from 2.13%.

Agriculture saw growth of 5.02% from a year ago, while the industry contracted by 0.84% and the services sector grew by just 0.01%. Pakistan managed to avoid a sovereign default last year, but the economy is still fragile. Prime Minister Shehbaz Sharif, who won controversial elections in February, is seeking a new loan from the International Monetary Fund (IMF) to support the economy and boost foreign exchange reserves.

The IMF has lowered its GDP forecast for the current fiscal year to 2% from 2.5% due to weak domestic demand. However, the State Bank of Pakistan believes that better farming and industrial output will help support the economy. Pakistan’s economy experienced a rare contraction of 0.17% in the previous fiscal year.

The nation heavily relies on IMF aid with $24 billion in external financing needs in the upcoming fiscal year, which is about three times its foreign exchange reserves.