The economy in 2023: expectations, opportunities and challenges.

Byline: NAZIR AHMED SHAIKH

The historic challenges tested the global economy in 2022, from Russia's invasion of Ukraine and the sharp slowdown in China to surging inflation and rising interest rates. Challenges and cataclysms witnessed by the world during the last three years, mostly due to Covid-19 and unpredicted climate change and other ongoing issues, are unprecedented. Every country from Australia to America and from Canada to Chad has seen wearisome and difficult times.

The after-effects of Covid-19 still persist, giving rise to new global economic chaos. High inflation and supply line nightmares coupled with uncontrollable prices of essential food items are the issues that are making human life miserable in every country of the world.

However, there is a silver lining in the cloud. The recovery is expected in Asia's economic growth as industrial activity and services reactivate and consumption rebounds, as there is a relaxation of Covid-19-related restrictions and the reopening of borders in many countries. The GDP growth in the region is expected to soften gradually over the period of 2024-35, though it will remain above the global average.

The Accommodative Macroeconomic Policy

Though over the past twenty years, Pakistan has achieved significant poverty reduction but human development outcomes have lagged behind and economic growth is still unstable and sluggish. Despite rapid poverty reduction, human capital outcomes have remained standstill and deprived, with high levels of inhibiting at 38% and learning poverty at 75%. Growth of per capita gross domestic product (GDP) has been low, averaging only around 2.1% annually over 2000-18. The Covid-19 pandemic has also had serious impacts on human development outcomes and economic growth.

Supported by accommodative macroeconomic policy, Pakistan's economy saw robust growth in FY22, at the cost of growing economic imbalances. The government has begun to further tighten policy to constrain aggregate demand.

Looking Back

The year 2020 was opened, and the government was moving desperately to complete the sixth review of the IMF program which was signed in July 2019. Due to Covid-19, the said program was suspended in March 2020. The government tried to negotiate with IMF with a conscious effort to resume it but couldn't able to begin before March 2021. On March 24, the IMF approved the release of Pakistan's tranche of $500 million. A few days later Pakistan issued $2.5 billion in Eurobonds plus another $1.5 billion borrowed from the World Bank. In one week immediately after the board approval of the IMF review, Pakistan borrowed $4.4 billion from global markets and international financial institutions.

Foreign exchange reserves began depleting in September 2021, falling relentlessly month after month ever since. The current account balance had remained briefly in surplus between May and November 2020, but plunged into an escalated shortfall from the next month, continuing relentlessly month after month.

In November the government also requested another $3 billion deposit from Saudi Arabia in a desperate...