Pakistan tops Asia in living costs and inflation rates, report reveals

A recent Asian Development Bank (ADB) report revealed Pakistan’s dubious distinction as the nation with the highest living costs in all of Asia, accompanied by a staggering 25 per cent inflation rate.

Released in Manila, Philippines, the report paints a bleak economic outlook, forecasting a modest 1.9 per cent growth rate for Pakistan, the fourth lowest in the region.

According to the Asian Development Outlook cited by Pakistan’s Express Tribune, the inflation rate is projected to soar to 15 per cent in the upcoming fiscal year, maintaining Pakistan’s status as the leader in inflation among 46 countries surveyed.

Furthermore, the report estimates a 2.8 per cent growth rate for the fiscal year 2024-25, ranking Pakistan fifth lowest in the region.

The ADB’s assessment highlights Pakistan’s unprecedented inflation rate, attributing it to economic challenges exacerbated by the COVID-19 pandemic.

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Despite setting an inflation target of 21 per cent for the current fiscal year, the State Bank of Pakistan and federal government are expected to fall short of this goal, even with a substantial 22 per cent interest rate.

Amid these economic woes, the ADB foresees Pakistan’s economic growth hovering at a meager 1.9 per cent for the ongoing fiscal year, placing it among the lowest in Asia, just ahead of Myanmar, Azerbaijan, and Nauru.

Pakistan is in a stagflation phase for a prolonged period and the World Bank too said last week that another 10 million more people might fall into the poverty trap because of any adverse shocks. About 98 million people are already living a poor life in Pakistan.

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In the past, the ADB gave a rather optimistic economic scenario close to Pakistan’s official forecasts.

However, the latest ADB report stated that Pakistan would continue to face challenges from substantial new external financing requirements and the rollover of old debt, exacerbated by tight global monetary conditions.

The Manila-based lender said political uncertainty that affected macroeconomic policy making would remain a key risk to the sustainability of stabilisation and reform efforts. It said with Pakistan’s large external financing requirements and weak external buffers, disbursement from multilateral and bilateral partners remained crucial.

“Further IMF support for a medium-term reform agenda would considerably improve market sentiment and catalyse affordable external financing from other sources,” the report added.

Finance Minister Muhammad Aurangzeb is set to meet the IMF Managing Director Kristalina Georgieva next week in Washington to request a new bailout package. The IMF MD said this week that Pakistan was in discussions for a potential follow up programme.

However, she said that there are “very important issues” to be solved in Pakistan: the tax base, how the richer part of the society contributed to the economy, the way public spending is being directed, and creating a more transparent environment.

The ADB said low confidence, a surge in living costs, and the implementation of tighter macroeconomic policies under the IMF programme would restrain domestic demand in Pakistan.

It said the government’s goal was to achieve a primary surplus of 0.4per cent and an overall deficit of 7.5per cent of GDP in FY2024, with both declining gradually in subsequent years. However, the World Bank said last week that Pakistan would miss both these budget targets, reported The Express Tribune.

With inputs from PTI