SBP pins weak growth on falling productivity

The State Bank of Pakistan stays firm on its projections, revealing that real Gross Domestic Product (GDP) growth rate will range from 2.5 to 3.5 percent during fiscal year (FY) 2024-25. According to reports, the SBP expects macroeconomic indicators pertaining to growth to move in a positive direction owing to an uptick in economic activity in the second half of the current FY.

However, international creditors have revised their growth projections downward. Data from the World Bank indicates that Pakistan's economy is expected to grow by 2.7 percent during the current FY, falling marginally from earlier estimations of a 2.8 percent growth rate.

However, the International Monetary Fund’s (IMF) growth revisions have been more pronounced as the lender expects real GDP growth to sit at just 2.6 percent. This is a large deviation from the growth rate the IMF originally anticipated, which stood at a respectable three percent.

In the SBP’s biannual report, The State of Pakistan’s Economy, the central bank has pinned the blame for sustainable economic growth on falling productivity levels. According to the report, the drop in productivity has negatively impacted the cash-strapped country’s "economic competitiveness". 

The report outlined abysmally low GDP per worker figures, which, as per reports, were below its counterparts. The figure above is often used by economists to roughly gauge the average productivity of workers in the economy.  

Pakistan’s GDP per capita values have not fared well either, as Trading Economics projects per capita GDP to be $1717 for 2025. For reference, India’s GDP per capita was estimated at $2,377 during the same period.

The SBP’s report conceded that there is a greater risk of weaker real GDP growth rates, which may sit closer to the 2.5 percent value of the 2.5 to 3 percent growth band predicted by the SBP.

According to data from reports, domestic industries are struggling, especially the Large-Scale Manufacturing sector, which recorded a staggering 1.9 percent decline during the first eight months of FY 2024-25. Coupled with other sectors shrinking, the SBP has highlighted a paltry growth in employment levels, spelling bad news for job seekers.

The cotton sector has witnessed a 28 percent fall, which spells bad news for a textile exporting nation, as cotton is a major input material in textiles. The decline in cotton production could stem from the domestic textile sector’s increasing reliance on imported cotton. 

However, the federal government has enacted policies to make domestically produced cotton as competitive as imported cotton to boost productivity.