Pakistan's misguided policies push fragile economy back into deficit: LSE report

Lahore [Pakistan], November 27 (ANI): Pakistan's hopes for an economic revival have dimmed yet again as its current account deficit widens, undermining growth expectations for FY 2025-26, according to a new analysis by the Lahore School of Economics (LSE). The report paints a troubling picture of an economy still unable to break free from structural weaknesses and external vulnerabilities, as reported by The Express Tribune.

According to The Express Tribune, the LSE Modelling Lab and Innovation & Technology Centre projects GDP growth to stagnate at 2.4%, the same as the previous fiscal year, after the country slipped back into deficit in the first quarter.

The study attributes this stagnation to Pakistan's chronic dependence on external inflows and its inability to manage imports effectively.

Despite entering FY26 with optimism following a USD 2 billion current account surplus in the prior year, the trend reversed rapidly, with a USD 0.6 billion deficit recorded between July and September.

If this continues, the shortfall could exceed USD 2.4 billion by the end of the fiscal year.

Economists Moazam Mahmood and Azam Amjad Chaudhry, who led the study, argue that Pakistan's weakening external position has overshadowed modest gains in domestic sectors such as manufacturing and agriculture.

Large-scale manufacturing showed minor progress with 0.5% growth after years of contraction.

In comparison, agriculture is expected to rebound to around 2.5-3%, supported by better weather conditions and potential revisions in crop pricing policies.

The LSE study warns that even if imports decline and macroeconomic indicators improve, GDP may only reach an upper limit of 2.9%, still below the 3.3% government target, the IMF's 3.6% forecast, and the World Bank's 3.1% estimate, as cited by The Express Tribune.

Inflation, meanwhile, is projected at 7.1%, driven mainly by high energy costs, 60% of which stem from government taxes and lingering exchange rate instability.

The report recommends a pragmatic approach to address Pakistan's economic fragility.

It urges policymakers to prioritise long-term structural reforms, liberalise imports of investment goods, and curb luxury imports to stabilise the current account.

Without decisive reforms, the LSE warns, Pakistan's recurring cycle of deficits, inflation, and mismanagement will continue to erode public confidence and economic resilience, as reported by The Express Tribune. (ANI)

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